Many look at college as a brilliant income opportunity. College degrees open doors to high-demand jobs, which you cannot access otherwise.
The future must be promising enough to justify the cost. “You pay us tens of thousands now, and we help you make far more money years later.”
What not many students know is how long does it take to break even. Although you could see it as an investment, it only improves the chances of income: it doesn’t guarantee anything.
A graduate could take months to repay student debt, mostly years. Since many lack the financial experience, one may be tempted to think that loan recovery is easy to negotiate or forgive.
The reality is, only the exceptions to the rule get their loans forgiven, often because they face tougher life challenges than debt (e.g. dissabilities).
Let’s say you do get a job as soon as you graduate. Depending on the cost of specialization, it would still cost you years to repay it. It’s not surprising graduates are looking for shortcuts to get rid of the burden, most of which are clever schemes designed to rip off students.
What Are Student Loan Recovery Scams?
Loan recovery fraud involves making a bold, dishonest promise to convince academic victims to give money or share private information.
When you get into tens of thousands in debt without a plan, you’re playing with fire.
- Collectors can garnish your wages.
- You may lose Social Security benefits and aids.
- You will damage your credit, thus limiting purchase options.
- Your loan passes onto a collection agency, which may set inconvenient interest rates.
Dishonest agents, of course, promise to save you all these problems with an easy card payment. When in desperation, debtor students will trust these promises without questioning the decision too much.
If you think about it, it costs nothing to pose as a debt relief agency these days. You could create your own within a day as long as you have:
- A sleek website, valid phone, a trustworthy email address, and a .gov/.org domain.
- Editing/forgery skills to alter documents at will (anybody can do it with today’s technology).
- Eye-catching sales pitches and deep-discount offers.
Once they win your trust, they only need to work around your interests, and you won’t be able to say No to them:
- They use fear tactics to encourage you to take action on loan recovery. You don’t want to find yourself trapped in debt forever.
- Fraudulent tactics. Con men often use time-limited offers and opportunities to express urgency. For social validation, they show dishonest testimonials, and for recognition, they create false certifications.
- They avoid detection by operating under different company names and contact data. Beware when the firm doesn’t appear in the list of trusted partners for the Department of Education.
Student Loan Recovery Fraud: Red Flags To Watch Out For
Have you ever said no to an offer because it didn’t look right? You couldn’t explain it, but your intuition told you to avoid the situation. If you did, you might have unconsciously detected fraud red flags.
Now, an opportunity showing red flags may still be legit, although the majority of them aren’t. If you only find one or two, there may be a legit explanation. If you spot multiple, it means Scam.
The easiest way to win a victim is to give them exactly what they want. Con men will never say no to you, so you can keep your expectations high and feel great. However, if nobody tells you the unpleasant truth, they can be lying to you.
- You don’t pay your loans overnight.
- There’s no persuasive pitch to forgive debt for no reason.
- Debt relief agents aren’t magicians. They can only do so much for your situation, and they will rarely do anything you could do yourself.
But aside from looking good, fast forgiveness also means immediate payments. Scammers have a funnel, and the faster you pass through it, the better it’s for them. If it weren’t fast, you’d notice the con before losing money.
Immediate solutions also imply they have some formula to deliver what they promise, thus offering a one-size-fits-all service.
#2 Absolute, bold promises
How did you feel when you realized that colleges don’t guarantee a job? Daydreaming of a future career may be motivational, except when they’re just dreams. Pretty much everything in this world is probabilistic, not deterministic.
You cannot expect different results by doing the same thing over again (definition of madness). What works for others may not work for you, so the minimum required is a customized service.
“We help you pay back your loan this week, no matter how big it is!”
That statement also means they don’t care about your background or interests. But universal methods don’t fix specific problems.
Bold promises often go hand in hand with abstract wording. If you can’t get a clear picture of how they are going to deliver, you may as well assume their firm is fake/doesn’ exist.
#3 False legal claims
Dishonest law firms may pitch you with some hidden solutions only they know. They promise to save you a fortune if you move it onto them.
But there are no situations in which you can save thousands by just paying through another entity. Not only does it do nothing for the loan. The intermediary may request extra charges to the borrower.
What usually happens is, none of the money reaches the lender: the agent keeps it all.
Before you pay a dime, know how they plan to solve the debt and consult your private lender. You don’t need a third person to recover a loan.
#4 Premature registration
Before you receive any service, you require to pay a fee or include all your private information. You may haven’t decided yet whether to work with the agent or not, but you can’t without registering.
Perhaps they offer you some “free trial,” which requires sharing your credit card, your FSA ID, or SSN.
To avoid identity theft, most brands have automatic security systems where you enter your data, and nobody else can see it. Nobody should ever ask you for sensitive data directly.
Never share any documents other than the necessary. Your debt may be intimidating, but it’s not as expensive as compromising your financial identity.
Whenever someone makes you make decisions rapidly, know they’re trying to hide something. They are not trying to solve your problem faster.
#5 FSA ID Requested
Students require a username and password for the FSA ID to complete FAFSA (Free Application for Federal Student Aid). Third parties should never ask you for an FSA ID password, not even the person helping you with the FAFSA form.
Sharing this ID is like sharing a copy of your written signature. Anybody who has it can make changes without permission posing as you.
If you’ve shared the ID, you can change the password or go through the Account Recovery Process.
#6 100% Outsourced
Dishonest agents discourage you from paying any money to your lender. Instead, they want you to pay the whole amount through them. If you do, they promise to renegotiate your loan, lower the price, and recover from debt faster.
If the firm doesn’t appear in the Department list or has no online presence, assume it’s fake. Let’s see what would happen if you paid:
- The intermediary collects any money you send without ever contacting the lender [phantom help].
- For the lender, you’ve defaulted on your loan. Any interest owed becomes due immediately. It also excludes you from repayment plans and other aids.
It’s worrying how easy it is to create a fake identity with phishing and imposter tricks.
#7 The agent wants the deal more than you
You know there’s something they aren’t telling you when you can’t refuse the offer. If you can’t find any risk/downside— or the agent counters every objection — they may be getting more benefit from the deal than you.
Have you ever wondered how debt relief agents make money? Service fees? Commissions? If you don’t know the answer, they may have one you won’t like: rip-offs.
Those sellers will use aggressive, intrusive tactics so you can’t refuse what they offer. Perhaps they are predatory lenders trying to replace your first lender with higher interests.
When the deal looks too good to be true, consult multiple lenders to gain perspective and find the truth.
#8 Payments everywhere
Show us someone requesting upfront payments, and we’ll show you someone who has nothing to offer you.
Most services— mainly when sold by new brands— start with a free trial. You don’t pay if you don’t get results. But advance fee fraud works the opposite way: you don’t get results unless you pay. And if you still didn’t get any, then you didn’t pay enough!
Some deceiving tactics may trap you into recurring payments when you only expected a single charge. You get into the world of imaginary fees, whether it’s service, maintenance, or just “processing.”
If you get the service, it won’t be different from anything you could already do by yourself for free.
Lastly, look at the payment method. Many con men default to wire transfers, gift cards, money orders, even Bitcoin. If they accept something like Paypal, they will specify using Friends & Family (so you don’t get Buyer’s Protection).
Types Of Loan Recovery Scams
Fraudulent recovery agencies rarely solve the loan problem. Instead, they may worsen it, create a new problem, or do nothing at all.
Once you spot the red flags, be sure they’ll take some of these directions:
Predatory lenders want to trap you with unmanageable interest, whether you need the money or not. They often approve you fast and offer more money than needed. Later, they benefit from some condition they didn’t mention on contract, charging you even more.
It all started with a promise: we will pay the loan in full for you. You just need to fill up some information and signatures.
You agree on the terms, they give you the money, get rid of student debt, and you’re a happy camper. But later on, you find collector notices saying you owe money from a new lender: the one who paid the student loan.
Without warning, they got you into an unforgiving second loan with sky-high interest. At least your first lender will be happy.
#2 Phantom help from a (fake) law firm
More often than lenders, you contact generic con men with nothing other than a website. They call themself financial experts when they lack the background to prove it. Upon desperation, you trust them with your finances by rationalizing: it cannot get worse, so it can only get better from now!
Trust but verify. Most impostors make you choose one-way-only methods, so if you find out the mistake later, you cannot cancel your payment. Some people have trusted them thousands of dollars, hoping to settle their student loans.
As the most common con of the decade, imposters pose a bigger threat than any other scam, whether it’s student loans, collectors, the IRS, shopping, or fake agencies.
Phantom help is one of those you later wonder. “How could I fall for such an obvious trick?”
#3 Phishing with student loan recovery
Just as con men can make up any excuse to request upfront payments, phishing scammers have many reasons to collect your data before you receive anything.
Since they offer to help you for free, the confidence trick makes them look more legit. The agents then pass you some disguised malware/phishing links via email/SMS and steal your identity.
Unfortunately, there are limited options to recover money from phishing: the scammer has control and will never get caught. Knowing how often phishing happens, it’s safe to self-educate about the topic and prevent identity theft. They promise to pay back your student loan, but you end up losing everything you had.
How To Prevent Loan Recovery Scams
When you’re so deep into debt, the last thing you want is owing more money. Although looking for shortcuts sounds like a good idea, it’s the same mentality that makes you a scam magnet.
No matter how much you owe, loan recovery shouldn’t be a big deal as long as you have a plan. What matters is taking ownership of one’s finances, because losing money requires twice as much money only to get back to where you started. Just because you more or have “no money to lose,” it doesn’t mean you should risk it with scammers.
#1 Communication removes pressure
Who can you trust? You don’t only want someone who says what you’d like to hear. You need someone you can consult for a customized service. Here are some specifics you should ask:
- If a rate is fixed, what rates am I eligible for?
- When am I required to start making payments? When are my payments due?
- Can I defer payments while I am still in college? If so, for how long? If I delay, how does that affect my payments later on?
- What sort of penalties are associated with this loan?
- What happens if I only make one payment late?
- Are any discounts you offer subject to change later on?
- Are there any circumstances in which I would be allowed to reduce payments temporarily?
- How much can I borrow without it affecting my credit score?
- What happens if I default? What can I do to prevent it?
- Am I eligible for income-based repayment plans?
Someone who wants to help you will listen to your questions and take a new approach for every different person.
#2 Get real help
You won’t be able to ask specific questions if you aren’t talking to a real person. People often find classified ads and sales pitches with big promises when there’s no person to back up their words. You have no choice but blindly trust the offer and see what comes out.
Perhaps you should consult your student loan servicer. They may offer a repayment plan to help you manage debt. As you look for help, also remember to learn about saving and making money, which is the no.1 way to solve debt problems.
#3 Make copies to prepare for the worst
Any documentation you forget makes it harder to settle/negotiate your student loan.
- They process because you forgot one document.
- The lender requests more money than what you originally agreed, but you have no reports to prove him wrong.
- You gave sensitive data to an identity thief, who has altered your reports. The lender now can’t recognize which documents have changed and which ones haven’t.
You can copy files within minutes, and the time they save you on errors is invaluable.
#4 Use trusted sources
Avoid 3rd party lenders by sticking to federal resources. Your student loan services may not agree with what a private lender promises you. If you want to keep the matter simple, you can ask others for help, but deal with your lender directly.
#5 Take financial control
And lastly, the hard advice: assume responsibility for whatever happens to your finances. That includes setting repayment plans, learning to save (and invest money), and increasing your income.
Not only it’s the most effective solution. It’s the preferred long-term approach. By following it, you ensure that;
- Your credit score goes up or at least doesn’t worsen.
- Lenders keep offering you money when you need it.
- You get better interest rates because of your history.
If you ever get in debt again, you’ll already have the skills and tools to get back up in no time. When it comes to creating financial freedom, you cannot afford not to do it.