Operation Game of Loans“Winter is coming for debt-relief scams,” said the FTC last month when it announced an initiative called “Operation Game of Loans.” The initiative promises to crack down on student loan debt relief scams which, in tandem with student loan debt, has steadily been increasing in recent years. Alongside 11 states and the District of Columbia, the FTC has brought enforcement actions on dozens of companies which have made millions of dollars targeting individuals seeking relief from student loan debt. As this initiative gets underway, here’s what you need to know about these scams and their impact on consumers.

What are student loan scams?

Student loan scams are nothing new, in fact, many fall under a common category of financial scams known as debt relief scams. Typically, the way that debt relief scams work is that for a fee, a company will offer to reduce or eliminate your debt. They promise to do this either through negotiation with your creditors or some other financial techniques. In truth, many of these companies simply take your money and dig you further into debt.

Student loan scams are no different. Student loan relief companies promise to either help you “eliminate” debt by using your FSA ID or social security number to enroll in a federal repayment program (something you can do yourself for free) or another program you’ve never heard of, or offer to talk to your lender on your behalf if you give them power of attorney. In a few instances, they might pretend to be affiliated with the Department of Education in order to supposedly provide you with a service that other companies can’t. In any of these instances, the companies are likely going to take advantage of any information or money you give them.

What makes it confusing is that real debt relief companies, including student debt relief services, exist. The major difference, however, is that these companies cannot demand or collect money upfront. Nor can they promise guaranteed debt relief. In most cases, the kinds of support these legal debt relief companies provide are indirect. They might create a new payment plan for you, inform you of your current options or in some cases, help you come up with talking points to negotiate with your lender. Under no circumstances, though, will a legitimate debt relief company make guarantees, pressure you into using its service or ask for personal information or upfront payment.

Why are these scams growing?

The reason these scams are growing is because the student loan market is growing. As graduates strap on ever-increasing loads of debt, the potential for more individuals to default increases. For scammers, this growing desperation presents a great opportunity that simply can’t be passed up. Scammers are also taking advantage of consumers’ gaps in knowledge regarding official repayment programs, as well as frustration with loan servicers, whose mistakes sometimes inhibit consumers from taking advantage of real repayment programs.

How can you recognize these scams?

The key to recognizing debt scams is realizing that you can’t bargain away your debt. Anyone selling you guarantees of debt relief or charging you exorbitant fees to deal with your debt is likely a scammer. In addition, here are some other things to keep in mind:

  • Companies and services calling you out of the blue offering some spectacular deal are likely scammers. As such, you shouldn’t respond to any unsolicited messages, especially ones pressuring you to pay money or provide information, from what are essentially sketchy telemarketers looking for their next mark. If you’re ever unsure about the legitimacy of something, you can do a quick Google search and see what pops up, as phony offers or companies are usually labeled as scams on forums and community websites.
  • You should never give out your personal information or money for “debt relief” or access to federal repayment programs through a random third party. Instead, apply for these repayment programs (as well as forbearance and deferment) through the Department of Education or your loan officer.

Where can I learn more about official loan adjustment options?

If you’re interested in learning more about official loan repayment options endorsed by the federal government, you can find out more by reading this article and checking out the Federal Student Aid website, which provides the details you’ll need once you’re ready to commit to a specific plan. Remember that these plans are free to enroll in with paperwork you can access and fill out on your own.

For more information about new or ongoing scams, follow our scams blog.