Student loan forgiveness scams are on the rise, CFPB warns

Fraudulent companies promising student debt relief have scammed borrowers out of hundreds — and sometimes thousands — of dollars, according to a new CFPB report. (iStock)

The Consumer Financial Protection Bureau (CFPB) has said so saw an increase in complaints of student borrowers about scammers promising debt forgiveness or forbearance extensions. In some cases, borrowers have reported being defrauded of hundreds or thousands of dollars.

Programs authorized for student loan relief include Public Service Loan Forgiveness (PSLF), School Holidays Closed, Borrower Defense of Repayment, Income Based Repayment Plans (IDR), COVID-19 administrative forbearance and federal payment deferral.

Another legitimate debt relief option is refinancing, in which you pay off your current student loan with a new loan through a private lender who offers more favorable terms, such as a lower interest rate. or a monthly payment. But it is important to note that refinancing your federally held student loans into a private loan makes you ineligible for the government-sanctioned programs above.

Keep reading to learn more about how you can avoid falling victim to student loan forgiveness scams, as well as your legitimate repayment options like refinancing. You can visit Credible to learn more about refinancing your student loan debt.

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5 red flags of student loan forgiveness scams

Given the complex nature of student loan servicing, some borrowers may participate in scams without fully understanding their legitimate options. If an unknown company approaches you to offer you debt management or cancellation services, the CFPB said there are a few red flags to watch out for:

  1. Bill you in advance for services that should be free. The Department of Education does not charge fees for the Deferment, Forbearance, Loan Consolidation, and Federal Student Loan Forgiveness programs.
  2. Use sales tactics, including limited time offers. The programs offered by the Department of Education do not require a sense of urgency that pushes you to make a quick decision.
  3. Urging you to cut off communications with your student loan officer. Keep seeing your repairer regularly and keep making monthly payments to avoid becoming delinquent.
  4. Pretending to be affiliated with your loan manager. If you have questions about the legitimacy of a company, call the number on your billing statement or log into your repairer’s online portal.
  5. Request personal information by telephone, such as your Federal Student Aid (FSA) ID and password, social security number, or banking information. This allows scammers to cut you off from your loan service and steal money directly from your bank account.

If you believe you have been contacted by a scammer, contact your bank immediately to block any scheduled payments. You should also contact your loan servicer to protect your account and submit a report via the Federal Trade Commission (FTC).

And if you’re struggling to make your student loan repayments, you might consider enrolling in an IDR plan or requesting a deferral on the FSA website. You may also be able to lower your monthly payments by refinancing a private loan at a lower interest rate. You can visit Credible to compare student loan refinance rates for free without affecting your credit score.

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Is student loan refinancing a scam?

Unlike the student loan forgiveness or forbearance scams described by the CFPB, student loan refinancing is a legitimate method of paying off debt. However, that doesn’t necessarily mean that refinancing your student loans is a smart move. Here are some ways to determine if student loan refinancing is the right strategy for your financial situation:

  • Consider your current repayment terms. You can find your interest rate, loan amount and repayment date on your loan agreement. You should also think about the type of student loan you have, such as federal or private. Refinancing your federal student loans through a private lender makes you ineligible for certain programs such as IDR plans and the current payment break, which expires in September.
  • See what refinance rates you qualify for. Most lenders allow you to be prequalified to see your estimated interest rate with a soft credit check, which won’t hurt your credit score. If you qualify for a lower rate than you are currently paying, you may be able to save money on interest charges over the life of the loan.
  • Use a student loan refinance calculator. Enter your current and desired loan terms into a student loan refinance calculator, like this one from Credible. This can help you estimate your new monthly payment, total interest charges, and potential savings.

You can browse current student loan refinance rates from private lenders in the table below. Then you can be prequalified with multiple lenders at once in Credible’s student loan marketplace.

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Do you have a financial question, but you don’t know who to contact? Email the Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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