With the rise in student loan debt, there has also been a rise in student loan scam. In increasing numbers and amounts, people are finding it difficult to pay their student loans in a timely fashion, causing many to default on their debt. As with any time a person is in a bind, people come out of the woodwork to take advantage of their misfortune. We’ll talk about some tips for spotting student loan scam.
Upfront Funds and Student Loan Scam
Current federal lending law prohibits any institution from asking for upfront fees. Legitimate private lenders may have fees associated, but these are generally deducted when the funds are disbursed. Loan consolidation services have no need to charge upfront fees as their payments are based on performance. Financial experts explain that many companies running a student loan scam will suddenly become unavailable once they have received the funds and that law enforcement has a difficult time tracking them down.
When an individual contacts you offering you funds of some sort, but begins attempts to gain sensitive and personal information from you, this is sure sign they are running a student loan scam. You should never be required to supply credit card or bank account information to anyone over the phone or through the internet. This is the equivalent of identity theft and your information can be used to open credit accounts, or worse, to withdraw funds from your bank.
Free money is that which does not require repayment, such as scholarships or grants. There should not be any type of fee required to receive or apply for one of these. From beginning to end, the entire process of applying or receiving a scholarship or grant should not cost you a penny. Beware of situations that ask for a fee – you are looking at a student loan scam.
It is critical that you have all phone and contact information for the lender that manages your student loan. Student loan scam companies will either list false contact information, or no information at all. Be suspicious of post office boxes. Even if payments are mailed to a PO Box, you should still be able to find a physical address for any legitimate company.
This particular student loan scam targets those individuals with private loans that carry higher interest rates. The borrower is contacted with the opportunity to transfer their student loan debt at a lower interest rate, but fees are associated with the transfer. Once the fee has been submitted, the scam company disappears and the loan is still owed to the original lender.
Privately Held Student Loans
The largest majority of student loans are federal, but there are still a great number that are held by private institutions. When you are researching student loan options, you need to keep a few things in mind before you decide which direction is the best option for your circumstances.
- Interest. You may see advertisements for private lenders that offer student loans at lower interest rates, but this only applies to a very small percentage of people. If you have pristine credit, you could be approved, but most people are not. This is a trick that lenders will use to get you in the door.
- Repayment. The best thing you can do for your student loan debt is to make your payments. Every financial advisor will tell you to make more than the minimum payments on any loan you have in order to gain freedom as quickly as possible. But before you do, make sure that the extra money goes toward the account you intended – many lenders may apply the excess toward other accounts owed. While this isn’t a student loan scam, it could present a nasty surprise.
- Co-signers. In many cases, private lenders require a co-signer on student loans. This arrangement means the person that is co-signing is accepting equal responsibility for the debt. The student’s parents are usually the ones who function in this capacity. Should you fall behind on or default on the student loan, the person who co-signed will also fall under any debt collection efforts and suffer a poor reflection in their credit score, unless they are willing and able to re-pay the loan themselves.
Student borrowers need to be vigilant and mindful of how they deal with companies that offer student loan services. Ensure that you are dealing with a legitimate lender and not a group of thieves operating a student loan scam. Because of the higher amount of debt attributed to student loans, and the frequent difficulty encountered when repaying, the number of scams are ever increasing. Be mindful of the warning signs that point to an unscrupulous organization that could be making false promises with not intent of giving you the assistance you’re expecting.