FTC to pay more than $5.4 million to people scammed by student loan debt relief fraudsters

The Federal Trade Commission is sending more than $5.4 million to nearly 40,000 people who were scammed by a student loan debt relief companies, the government agency announced. 

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The fraudsters, who made off with at least $20 million, were required to pay up under a 2018 settlement with the FTC, the organization announced in a press release Monday.

The FTC alleged that Los Angeles-based companies using names like Alliance Document Preparation LLC, and Post Grad Aid, bilked millions of people trying to reduce or eliminate their student loan debt. They used social media platforms like Facebook to market their fake relief programs and misrepresented that they were affiliated with the U.S. Department of Education or the loan servicers. The defendants falsely claimed that consumers who paid an upfront fee of up to $1,000 were qualified or approved for permanently reduced monthly payments or loan forgiveness.

The FTC is sending 39,734 checks to people who lost their money, totaling $136.48 each on average. The checks will expire after 60 days, the FTC said, noting: "The FTC never requires consumers to pay money or provide account information to cash a refund check."

Borrowers have reported receiving emails, letters and phone calls offering them financial relief from their federal student loans. In most cases, these companies don't offer any relief at all and just take people's money. One of the most common ways fake companies try to swindle those saddled with debt is by claiming they’ll get rid of student loans without the person having to pay it back, for a small fee. The only legitimate reasons for not paying student loans may include permanent disability, identity theft or in some cases, school closure.

America’s $1.6 trillion student loan crisis has some presidential candidates proposing to cancel student debt and make public college free. And state legislatures are cracking down on student-loan companies.

Rep. Ilhan Omar, the 37-year-old Democrat from Minnesota, said she wants to cancel all the $1.6 trillion of public and private student debt and pay for it with a tax on Wall Street transactions.

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“As someone who’s part of the debt generation, I wanted to make sure that we were creating a proposal that would alleviate the kind of stress that people are dealing with,” Omar said during a panel discussion on BET earlier this month.