Durham resident April Ellerbe was relieved when she received a call from a company in August 2016 claiming she was eligible for student loan forgiveness. An alumna of North Carolina Central University, she was working full time in her field of study. Like many, she had taken out student loans to pay for her education. Both she and her husband carried federal student debt burdens, and she knew that her debt would increase with loans she planned to take out to help finance her sons’ college educations.
The company claimed to be a part of the “Obama Student Loan Forgiveness Program,” and all of its materials appeared to carry the U.S. Department of Education’s official seal. April had heard about student loan forgiveness and was relieved that someone offered to handle this process. All she had to do was make an upfront payment, then make her monthly payments to the company directly.
It wasn’t until months later that she learned this company was not who they said they were. She had been paying the company, but the company had done nothing to get her on a path to loan forgiveness. As soon as she started asking questions, she received an $800 refund and the company ceased contact, but the damage had been done. She was behind on her loan payments, her credit was damaged, and she was no closer to loan forgiveness than when she had started.
A common story
April’s story is not unique. Total student loan debt in the U.S. topped $1.3 trillion, and it is climbing. Information regarding loan repayment options can be overwhelming and confusing. Student loan servicers, the companies to which borrowers make their loan payments, are supposed to help place borrowers in payment plans that work best for them. However, servicers are often unhelpful.
Navient, the nation’s largest federal student loan servicer, is currently being sued by the Consumer Financial Protection Bureau for failing to provide the information and services that would help borrowers find better repayment options. Navient is also facing lawsuits filed by attorneys general in Washington, Illinois, and Pennsylvania on behalf of those states’ student borrowers, and it reached a $60 million settlement with the U.S. Department of Justice in 2014 for overcharging military borrowers. While Navient is the biggest name, these problems persist across the industry
The complexity of repayment options and failures of federal loan servicers have created an information gap in which student loan debt adjustment scammers have flourished. The scam companies often have official-sounding names that include words like “Education,” “Servicing,” “Student,” or “Loan.” They regularly claim to be authorized by the U.S. Department of Education to help borrowers obtain loan forgiveness or lower payments. They charge upfront and recurring fees.
They sometimes tell borrowers to cease contact with student loan servicers so that the company can take control of repayment. They even ask borrowers to sign powers of attorney. Sometimes they place borrowers in forbearance, which temporarily stops the need to make monthly payments, without telling them that the interest on the loan continues to accrue. When it’s time to start paying again, that interest is lumped into the principal loan balance, usually resulting in higher monthly payments than before. Other times, the company does nothing at all.
Sometimes, these companies do follow through on their promises and enroll students in an income-driven repayment plan, which results in lower monthly payments. However, they do this at a steep cost, when any borrower can get into a different repayment plan for free by contacting and following up with the borrower’s loan servicer.
Further, what these companies do often violates state and federal law. In North Carolina, any company that charges a customer upfront for these types of loan adjustment services is likely in violation of the state’s debt adjustment statute. Often these companies solicit over the phone, likely in violation of FTC regulations. At the first sign of resistance from the consumer, they generally give a refund and cease contact. But the borrower is left with the consequences of their predatory actions, and the company is free to move on to the next vulnerable student borrower.
The FTC has initiated a nationwide crackdown on these scammers called Game of Loans. While this crackdown will hopefully stop some scams, it is incredibly easy for bad actors to shut down and pop back up under a slightly changed name. As long as the systemic issues with federal loan servicers persist, scams will find a way to harm borrowers.
What borrowers can do
- Be very skeptical of any company soliciting debt adjustment services over the phone.
- Remember it is against North Carolina law for a company to demand payment prior to providing debt adjustment services.
- While Public Service Loan Forgiveness is (currently) a legitimate loan forgiveness program, be aware there is no such thing as the Obama (or Trump) Forgiveness Program.
- Federal student loan borrowers can explore potential repayment plans through the Student Loan Repayment Estimator run by the Department of Education.
- Federal student loan borrowers can change their repayment plans anytime and for free through their student loan servicers.
- Borrowers harmed by these scams should report the company to the state Attorney General and the CFPB.