Don’t Fall for These 3 COVID-19 Student Loan Forgiveness ScamsSeptember 17, 2021
If you’ve spent any time on social media lately, you’ve likely seen these terms pop up on your feed. Whatever phrase people use, they’re scams; there is no such thing as CARES Act or COVID-19 loan forgiveness. Unfortunately, student loan scams are increasingly common as unscrupulous people prey on borrowers.
In 2017, the Federal Trade Commission (FTC) launched Operation Game of Loans, an initiative that targeted student loan relief scams, such as student loan phone call and voicemail scams. According to the FTC’s research, student loan scammers have collected over $95 million in illegal fees.
As the COVID-19 pandemic continues, people are especially vulnerable as they look for ways to reduce their loan payments and eliminate their student loan debt.
3 Common COVID-19 Student Loan Forgiveness Scams
The COVID-19 pandemic has made identifying illegitimate loan assistance programs more difficult. In March 2020, then-President Trump passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act suspended federal student loan payments and reduced interest rates to 0% in one of the most aggressive student loan relief measures ever.
The CARES Act has since been extended multiple times. In fact, the CARES Act won’t expire until January 31, 2021.
Because the CARES Act is in effect, scammers are capitalizing on this program to trick borrowers into paying expensive fees or submitting sensitive information. To protect yourself from handing over your hard-earned money to scammers — and to prevent identity theft — look out for these three common student loan forgiveness scams.
1. They Promise Instant Loan Forgiveness
When a company promises they can help you achieve “COVID-19 forgiveness,” it’s a blatant lie. While the CARES Act suspended payments through the end of January 2021, it doesn’t offer loan forgiveness to affected borrowers. If you have federal student loans, your payments will begin again in February, and your balance will remain the same as it was before.
Although there are two loan forgiveness programs for federal student loan borrowers — Public Service Loan Forgiveness and Teacher Loan Forgiveness — not everyone will qualify, and there is no fee to apply.
2. They Claim to Be Able to Settle Your Debt for Less Than You Owe
Companies will offer to settle your loans for less than you currently owe — for a fee, of course. However, think twice about going this route. Debt relief companies are unable to negotiate with federal loan servicers on your behalf. Instead, you can reach out to them yourself to discuss your options.
Student loan settlement is extremely uncommon; even if you do qualify for a partial settlement, the savings are modest. For example, the loan servicer might only waive the collection costs and late fees; you’re still responsible for repaying the principal and accrued interest.
3. They Say They Can Lower Your Payments
Many student loan companies will tell you that they can lower your payments if you pay them hundreds or even thousands of dollars. What they don’t tell you is that you can do it yourself by applying for an income-driven repayment plan or refinancing your private student loans online. Both processes are free, and you can do them entirely on your own.
Student Loan Repayment Scams: Red Flags to Look For
If you get an email or see a social media post that seems too good to be true, it likely is. But what if it seems legitimate? Before paying fees or turning over your information, look out for these red flags:
You’re Asked to Pay Fees
Many student loan relief companies will ask you to pay hefty fees to consolidate your loans or lower your student loan payments. However, there’s no need to pay any fee; all of the services the company offers can be done on your own at no cost.
The Company Asks for Your Federal Student Aid (FSA) ID
If a company asks for your FSA ID, delete the email or hang up the phone. If you give them your FSA ID, scammers can use it to get your personal information, including your address and Social Security number, and take out other loans in your name.
You’re Pressured to Make a Decision Right Now
To prevent people from doing their due diligence and researching companies’ claims, scammers will pressure student loan borrowers to make a decision right away. They may say loan forgiveness programs are expiring soon, or that you can only lower your payment for a limited time. However, those claims aren’t correct; federal loan forgiveness programs and income-driven repayment plans are still active.
What Do I Do If I Was a Victim of a Student Loan Forgiveness Scam?
If you already paid a company for their help or gave them your login information, take steps right away to prevent them from doing any more damage.
1. Contact Your Loan Servicer
Call your loan servicer or lender to notify them of the problem. The loan servicer can lock your account and issue you a new username or password.
2. Place a Fraud Alert on Your Credit Report
Contact Equifax, Experian, and TransUnion — the three major credit bureaus — and request a fraud alert on your credit report. A fraud alert tells creditors that your information has been compromised, and they’ll take extra steps to verify your identity before approving loan or credit applications in your name.
3. Change Your Passwords
If your information has been compromised, change all of your passwords. Make sure you update the passwords on your loans, credit cards, bank accounts, and any other personal accounts you may have to protect your money.
4. Report the Incident to the Government
If you’ve been the victim of a scam, report the incident to the authorities:
- State Attorney General: State consumer protection assistant attorneys may be able to help you. You can find your state attorney general through the National Attorneys General’s database.
- Consumer Financial Protection Bureau (CFPB): The CFPB collects complaints and works with the companies to get customers a response. You can submit a complaint through consumerfinance.gov/complaint.
- FTC: Report all of the details to the FTC. The FTC shares reports with law enforcement, and it will also give you a detailed plan for protecting your identity and credit. Visit ReportFraud.FTC.gov to get started.
When you’re struggling with your student loans, advertisements for COVID-19 student loan forgiveness or CARES Act relief can be incredibly appealing. However, these programs are often complete scams, or they charge exorbitant fees to do services you can do on your own. Make sure you do your research before paying any money or giving them your personal information. If you aren’t sure a program is legitimate, contact your loan servicer to discuss your options.