The Consumer Financial Protection Bureau (CFPB) said it has seen a rise in complaints from student loan borrowers about scammers promising debt forgiveness or forbearance extensions. In some cases, borrowers said they were swindled out of hundreds or thousands of dollars.
Authorized programs for student loan relief include Public Service Loan Forgiveness (PSLF), closed school discharges, borrower defense to repayment, income-driven repayment plans (IDR), COVID-19 administrative forbearance and federal payment deferment.
Another legitimate debt relief option is refinancing, in which you pay off your current student loan debt with a new loan through a private lender that offers more favorable terms, such as a lower interest rate or monthly payment. But it's important to note that refinancing your federally-held student loans into a private loan makes you ineligible for the government-sanctioned programs above.
Keep reading to learn more about how you can avoid falling victim to student loan cancellation scams, as well as your legitimate repayment options like refinancing. You can visit Credible to learn more about refinancing your student loan debt.
5 red flags of student loan forgiveness scams
With the complex nature of student loan servicing, some borrowers may buy into scams without fully understanding their legitimate options. If an unknown company contacts you offering debt management or cancellation services, the CFPB said there are a few red flags to watch out for:
- Charging you upfront for services that should be free. The Department of Education doesn't charge fees for deferment, forbearance, loan consolidation and federal student loan forgiveness programs.
- Using sales tactics, including limited-time offers. Programs offered by the Education Department don't require a sense of urgency that pressure you to make a quick decision.
- Urging you to cut off communications with your student loan servicer. Continue to check in with your servicer periodically, and keep making monthly payments to avoid becoming delinquent.
- Claiming to be affiliated with your loan servicer. If you have any questions about the legitimacy of a company, call the number on your billing statement or log in to your servicer's online portal.
- Asking for personal information over the phone, such as your Federal Student Aid (FSA) ID and password, Social Security number or banking information. This enables scammers to cut you off from your loan servicer and steal money right from your bank account.
If you believe you've been contacted by a scammer, get in touch with your bank immediately to block any scheduled payments. You should also contact your loan servicer to protect your account, and submit a report through the Federal Trade Commission (FTC).
And if you're struggling to afford your student loan payments, you can consider enrolling in an IDR plan or applying for deferment on the FSA website. You may also be able to lower your monthly payments by refinancing to a private loan at a lower interest rate. You can visit Credible to compare student loan refinance rates for free without impacting your credit score.
Is student loan refinancing a scam?
Unlike the student loan forgiveness or forbearance scams outlined by the CFPB, student loan refinancing is a legitimate debt repayment method. However, that doesn't necessarily mean that refinancing your student loans is a smart move. Here are a few ways to determine if student loan refinancing is the right strategy for your financial situation:
- Consider your current repayment terms. You can find your interest rate, loan amount and payoff date on your loan agreement. You should also think about the type of student loans you have, such as federal or private. Refinancing your federal student loans through a private lender makes you ineligible for select programs like IDR plans and the current payment pause, which expires in September.
- See what refinance rates you qualify for. Most lenders let you get prequalified to see your estimated interest rate with a soft credit check, which won't harm your credit score. If you're eligible for a lower rate than you're currently paying, you may be able to save money on interest charges over the life of the loan.
- Use a student loan refinancing calculator. Input your current and desired loan terms in a student loan refinancing calculator, such as this one from Credible. This can help you estimate your new monthly payment, total interest charges and potential savings.
Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at email@example.com and your question might be answered by Credible in our Money Expert column.