Student loans are a heavy burden that many bear. There is over $1 trillion outstanding in student loan debt, and nearly 7 million student loan borrowers currently in default in the U.S.
Unfortunately, scammers are well aware of the crisis and will try to take advantage of borrowers by promising lower payments or creating forgiveness programs that don't exist. Others will promise to have your loans discharged, or your defaults forgiven for a fee. Ultimately, a victim of a scam can be charged thousands of dollars in enrollment fees as well as monthly fees for a service with little or no value.
To avoid being a victim of a student debt relief scam, do your homework and keep these tips in mind.
Know the difference between consolidation and refinancing.
Some scams offer to help borrowers consolidate or refinance their loans. To ensure that you're not the victim of a predatory institution, it's important to understand the difference.
Loan consolidation combines all your student loans into one convenient payment. The federal government has a loan consolidation program and offers consolidation through a qualifying lender. Your interest rate will be a weighted average of your existing loans, and you can change the repayment term of your new loan. A private consolidation and a refinancing are effectively the same and will also allow you to potentially lower your interest rate during the consolidation.
Do the research.
If you are considering entering a student debt relief program, thoroughly research the company that is offering it. Do you know any third parties who have used this service before? What was their experience? The Internet is a wealth of information; 20 minutes of browsing could save you from paying thousands of dollars for nothing.
Look out for red flags.
- Never pay a lender an upfront fee for refinancing. Legitimate lenders will do their job with no upfront cost. You should be wary of anyone trying to charge you in advance.
- Pay attention to deceptive marketing. Does this sound too good to be true? Were any and all fees disclosed in advertising? If not, you may be being taken advantage of.
Michelle Grajales, an attorney with the Federal Trade Commission, advises borrowers to "watch out for companies pretending to be blessed or vetted by the federal government, and watch out for companies that pretend to be part of a public repayment program."
Talk to your lender.
If you're having trouble making payments or have already defaulted on a student loan, talk to your lender directly. Explain to your lender what is going on financially and see what type of repayment options might be available to you.
Know what's out there.
If you're looking for help with your student loans, take the time to see what's available to you at no cost. Some people fall victim to scams because they don't know there are any other options. The government offers a host of programs designed to help struggling borrowers, and there are many well-reputed private lenders who are ready to help you refinance without asking for any out-of-pocket expenses.
If you are interested in seeing how you could potentially lower your interest rate through a private student loan refinance, visit Credible.