5 smart ways to avoid student loan scams

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5 smart ways to avoid student loan scams

While we may try to ignore it, simply put, we live in a world where there are more people trying to force us to spend money than save it.

Although it’s a bit of a downer to start the year off thinking about scams, it needs to be repeated for the sake of staying aware of all the types of scams we’ve reported on before. There are tax scams. Email scams. Fundraiser and charity scams. There are even utility scams that seek to shut the lights out on you and your bank account.

There are even student loan scams, run by disreputable, dubious companies meant to prey on innocent folks simply seeking a higher education. They may operate by exploiting one’s lack of lending knowledge, leading victims to believe that they’re a legitimate service, lender or financial group.

Even celebrities -- whom we thought had a million and one handlers to point them in the right direction (along with a million and one dollars) -- aren’t immune to getting fooled by the odd student loan scam. Or, in the case of reality star Blac Chyna, supporting them.

Chyna didn’t do anyone any favors late last month when she advertised a phony student loan forgiveness scam on her Instagram account. There’s speculation that Chyna, who urged her followers to call an 855 number before the President leaves office, was in on the phony "Obama’s Student Loan Forgiveness," scam and that she may have stood to earn up to $35,000 for her involvement. The fact is that no such student loan forgiveness program exists -- at least none endorsed by the outgoing commander-in-chief.

This is just one type of student loan scam you should be wary of if you’re borrowing or repaying money for your college tuition. Here’s how to spot some common scams, so you can avoid ever falling victim to one:

They ask for money up front

Fake student loan debt relief organizations will dress up their claims by guaranteeing they can get you out of debt with a program tailored for you. Regardless of what they promise you, if you’re contacted by any company offering you a service to get out of debt by paying a fee in advance, it’s a scam.

Most of the time, you’ll be solicited an offer to lower the interest rate on your existing student loans. For an upfront fee, it sounds too good to be true (because it is). Once you pay, you’ll never see or hear from them again like they never existed. Legitimate, accredited lenders and financial organizations, from banks to online vendors, won’t request payment until after, not before, their services have been rendered -- and even then, the amount you owe is generally deducted from your loan amount. Asking for money is normally the last thing, not the first, a bank will do.

They request payment to consolidate

Loan consolidation is one avenue to assuaging debt by combining several loans into one new loan, with a new, lower interest rate and more compatible repayment terms. In a student loan consolidation scam, your friendly scammer will offer to consolidate your loans with remittance of a few fees, usually some sort of "processing" or "administrative" cost to get the ball rolling. If and when you pay, nothing will be done with your money, or worse: the scammers may actually consolidate your loans to one that’s even worse than you had before, worsening your debt.

This is one scam that a student with a bit of lending knowledge can spot a hundred miles away. If your loans are federal, there is no third-party company that can consolidate your loans. You’ll need to go straight through the Department of Education’s official consolidation channels for that, which charges no fees. With your money, some scammers will even fill out the federal application for you when you could have done it for free.

They aren’t associated with a bank

Companies purporting to be lenders or student loan counseling services may seem on the right level when their website, logo, or web or social media presence looks legit, sometimes to a T. To further the charade, they may use buzzwords like "National," "Federal," "Consolidated" or some other official-sounding language to fool people into thinking they’re affiliated with the federal government or other lending organization. Many scammers may even use real logos without permission, so if you’re solicited debt help at a price from the Department of Ed, or the White House, consider it a scam.

They claim to have the law on their side

To legitimize themselves, a phony student loan organization may refer you to a "law firm" that can cheaply -- and legally -- reduce, settle or otherwise eradicate your student loan debt. The lawyer will request that you pay them directly while they pay your lender at a reduced, renegotiated rate.

When they don’t make the payments and pocket the money instead, you’ll officially become delinquent on your loan repayments, go into default, wreck your credit score, and end up paying thousands of dollars to a scammer that could have gone to your lender in the first place.

They promise to eradicate your debt

Never mind debt refinancing or consolidation; some phony student loan scams will claim they can eliminate your debt completely -- and do a better job than Obama or Trump would ever do.

An extension of the advanced-fee-up-front-please scam, debt elimination schemes aren’t very complicated. Once you’ve been convinced to pay, nothing will be done, nor is there anything that can be done. Student loans can’t be discharged under most circumstances, including in bankruptcy. And the only way to pay your way out of student loan debt is to make your payments yourself.

Safeguard yourself from student loan scams

  • Never divulge any personal or financial information during the shopping process. Don’t reveal your Social Security number, bank account information, student loan details or NSLDS login, or even your address, email or phone number to anyone you don’t trust. Never, ever give away any legal or power of attorney rights to anyone. If you’re asked for this information along with payment for services not yet received, you may be vulnerable to identity theft and a host of other financial problems.

  • Do more research on the companies that come to you. If they take the initiative and approach you to help pay down your student loan debt, consider it a scam. You don’t know them, but they know you and want your money. A bona fide student lender or educational organization will be available to the public through their websites, social media and by phone. They want to help, but you’ll need to make the first move and go to them.

  • Don’t pay anyone who pays for you. Rather, don’t pay at all. A surefire sign of a scam is any company who requests payment up front before they’ve helped you, or worse, who promises to pay your lender or the Department of Ed for you. Scammers instill a false sense of confidence in their victims that they can do a better job at managing their debt than you can do yourself.

  • Don’t get pressured to pay. If you’re contacted by a suspicious company -- or even if you’re not, and you seek out a seemingly normal looking student debt relief organization online -- don’t be pressured or guilt tripped into paying now, or by special offers prompting you to pay now or lose the deal. The National Foundation for Credit Counseling maintains that these tactics are used by scammers to divert your attention away from what they don’t want you to see.

  • Report fraudulent activity. If you feel you’ve been the victim of a student loan scam, you do have recourse. Contact your lender or student loan servicer to report any problems and rectify any issues if you’ve paid a scammer and had your loans go into default. If your credit report is at issue, contact the three credit bureaus (TransUnion, Equifax and Experian) file a request to investigate, and ask to put a hold/freeze on your credit if your accounts have fallen into the wrong hands. The Consumer Financial Protection Bureau also has an easy complaint process you can follow. Simply contacting your bank may be enough to reverse payments, cancel checks or claim a phony transaction.

  • Research before you do business. Just because a company looks real doesn’t mean they are -- and just because they look phony doesn’t necessarily mean they’re not authentic. Do your homework before working with anyone you may transact money with. Examine what kind of online/social media presence they have. Are they affiliated with any more recognizable lenders, schools or banking institutions? Do their phone numbers work? How are they rated through the Better Business Bureau, Trustpilot, or other online sources? Vet them out, inside and out, before doing business with anyone.

Student loan scams can be difficult to discern at first, since these companies work hard to appear as authentic as they can. Before letting anyone take advantage of your finances, make sure to follow official channels first.

If you’re in debt or feeling overwhelmed by your loan repayments, look into a deferment or forbearance on your loans. If those options haven’t helped, move onto seeking a refinance or consolidation. As always, developing your best budget and improving your finances can help you pay down your loans more quickly -- keeping you in control of your own debt, and not in the hands of a student loan scam.