How to Spot Student Loan Repayment Scams

Hundreds of private companies lure struggling borrowers with promises of student debt relief, when in fact all they do is charge to enroll student loan holders in free federal programs.

While not all such companies are scams, bad actors are rampant. More than 130 student debt relief entities have histories that give consumers reason to be wary, according to a 2017 NerdWallet public records investigation.

» MORE: If a stranger offers you student loan forgiveness, hang up

Some victims are getting relief. In the latest settlement, the Consumer Financial Protection Board found that a nationwide student loan debt-relief operation called GST Factoring charged $11.8 million in illegal upfront fees to consumers saddled with private student loan debt. The CFPB mailed relief checks to 2,600 scam victims on Mar. 23, 2023, following a 2020 ruling.

In another recent high-profile case, the CFPB alleged a handful of so-called student loan debt-relief companies were charging borrowers illegal fees, and in return, falsely promising better credit scores and lower student loan interest rates. In December 2022, the CFPB began mailing relief checks to more than 23,000 affected people.

Even if it's not a scam — if the company actually does what it promises to do — it's still probably charging you a lot of money for something that is free and relatively simple to do yourself.

Knowing the warning signs of a potentially harmful company can save consumers hundreds of dollars in unnecessary fees. Don't be misled by an official-sounding name like "Student Advisory Board." Here are five red flags to look for and tips on what to do instead.

1. You have to pay upfront or monthly fees to get help

There’s nothing a debt relief company can do that you can’t do on your own. And it’s not illegal for companies to charge for services you could do for free. Some people compare student debt relief services with tax preparation.

» MORE: Are student loan debt relief services legit?

But it is illegal for companies offering student debt relief to collect fees over the phone before they lower or settle a customer’s loans.

What to do instead: Go to studentaid.gov to apply for an income-driven repayment plan, learn about government forgiveness plans or consolidate your federal loans — all for free. If you have private loans, contact your lender or servicer to discuss alternative repayment plans. Borrowers with federal or private loans can request a temporary pause on payments by asking for deferment or forbearance. If you take this route, though, interest will continue to accrue, increasing your loan balance.

If you want expert help in navigating your options, contact a student loan counselor certified by the National Foundation for Credit Counseling. Some nonprofit credit counseling agencies charge a one-time fee ranging from $50 to $200, but they offer trustworthy advice for a fraction of what you’d pay to a for-profit company.

2. The company promises immediate loan forgiveness

Be wary of companies that claim to help you get loan forgiveness. There are legitimate government programs, such as Public Service Loan Forgiveness, that can reduce or eliminate federal student loans after a certain amount of time. However, only some individuals qualify for the programs.

For instance, borrowers must work full-time for the government or a 501(c)(3) nonprofit organization and make full monthly payments for at least 10 years before earning forgiveness through PSLF. Borrowers on income-driven repayment plans can get their remaining loans forgiven after they make payments for 20 or 25 years, depending on the plan.

What to do instead: Use Federal Student Aid’s Repayment Estimator to see your monthly payment and projected loan forgiveness on various plans based on your income and family size.

If you work in public service, make sure you understand the details of Public Service Loan Forgiveness. If you decide to pursue it, begin by submitting a PSLF employment certification form to confirm your employment qualifies.

3. A salesperson pressures you into signing up

Companies selling student debt relief services are typically staffed by sales representatives who earn commissions based on the number of customers they sign up. They may aim to instill a sense of urgency, saying things like, “Sign up now before it’s too late!”

But you do have time to make careful, well-researched decisions about your debt. There are no legitimate loan programs that are available only for short periods of time.

What to do instead: If you’re unsure about the legitimacy of a company, do more research before committing to anything.

Ask the company some questions like, “Are you affiliated with the Department of Education?” and “Can I do this on my own for free?” Honest companies will tell you that they’re not associated with the department and that you can apply for the help you need without paying for it.

Fraudulent student loan relief companies have been known to deceive borrowers by feigning relationships with the Department of Education. However, the agency contracts only with certain federal student loan servicers.

4. You’re asked to share sensitive personal information

Some companies may ask for borrowers to provide Federal Student Aid IDs or Social Security numbers. The data give the businesses the ability to sign into your account and make decisions on your behalf. Legitimate sources of student loan help, such as NFCC-affiliated nonprofit credit counseling agencies, do not ask for such information.

Additionally, some debt relief companies may ask borrowers to sign power of attorney agreements, which would allow the businesses to communicate with your loan servicer in your name. You’re not obligated to sign such documents; in fact, doing so may cause you to lose access to your student loan account.

What to do instead: Don’t reveal your FSA ID or Social Security number, or sign a power of attorney agreement. If you’ve already done so, contact your loan servicer, explain the situation and regain control of your account. Resume making payments directly to your loan servicer if you stopped doing so.

5. The company advertises on social media or shows up in search engine ads

Borrowers should automatically view student loan assistance companies that pay to advertise their services with skepticism, says Robyn Smith, an attorney the National Consumer Law Center, with nonprofit legal advocacy group. It usually means they’re in the business for profit, and since you never have to pay to consolidate your federal loans or to switch repayment plans, that’s a sign the services they offer could be a scheme to mislead you into paying for otherwise free assistance.

Former CFPB student loan ombudsman Rohit Chopra wrote in a 2015 letter warning Google that some companies may be misrepresenting themselves in online ads. “While we have warned consumers about these scams, we are concerned that unscrupulous companies may be using aggressive advertising through search products to lure distressed borrowers,” Chopra said.

Additionally, some companies use advertisements to create lists of potential customers to sell to other companies. These so-called lead generators often ask consumers to input personal information on web forms or call a phone number for more details. They then sell the data they collect to student debt relief companies.

What to do instead: Do research before responding to advertisements. Avoid providing personal information to online forms that aren't applications for legitimate programs.

» MORE: Cheated by a student loan forgiveness scam? What to do next

How to report a student loan scam

If you encounter a deceitful company, file complaints with the CFPB, the Federal Trade Commission and your state attorney general’s office. These agencies rely on consumer complaints to police harmful student loan companies and, when possible, get borrowers’ money back.

Student debt relief companies have popped up because filling out the necessary paperwork can be complicated and time-consuming, Smith says. But if you arm yourself with the right information, you’ll know how to ask the government for free help and you won’t lose money on a scam that could be going toward your debt instead.

“If it sounds too good to be true,” Smith says, “it might be.”

If you need student loan help

If you’re struggling with your student loan debt, first speak with your student loan servicer or lender to:

• Discuss repayment options.

• Take a temporary payment pause.

• Temporarily reduce your monthly payments.

If your problem is with your lender or servicer or you’re not getting the help you need, look for a legitimate student loan help organization that offers counseling. Consider these vetted resources for student loan help; they are established organizations with verified histories:

Many of these organizations offer advice for free. In some cases, you may need to pay a fee, as with a certified nonprofit credit counseling agency or if you hire an attorney.

None of the organizations above calls, texts or emails borrowers with offers of debt resolution.

Offers of help that you have not sought out are likely to be scams. While it’s not illegal for companies to charge for services such as consolidation or enrollment in a payment plan, those are steps you can do yourself for free.

Avoid any debt relief companies that demand money upfront. Find more information on student aid scams on the federal student aid site.