Introduction
A college education is an expensive one, and for most students, borrowing is the only means to cover the costs of tuition, room, and board, and other expenses. Yet as more students have demanded access to student loans, scammers also have seen an opportunity to make money by targeting borrowers. Scammers take advantage of students and their families by promising loan forgiveness, reduced interest rates, or guaranteed approval in return for confidential information or money upfront.
Becoming a victim of student loan scam can lead to financial loss, identity theft, and long-term credit damage. To not become a victim, it’s crucial to be aware of common scams, learn about how legitimate loan services function, and borrow safely. This step-by-step guide will assist you in spotting student loan scams, safeguarding your financial future, and making smart borrowing decisions.
Most Popular Student Loan Scams and How to Avoid Them
Scammers take different approaches in misleading borrowers. Here are some of the most popular student loan scams, followed by advice on how to stay safe.
1. Bogus Loan Forgiveness Schemes
Loan forgiveness schemes are created to assist borrowers in paying down or writing off their student loans under certain conditions. Scammers exploit this fact, however, by saying they can eliminate student loans right away for payment. These scam groups usually present themselves as government agencies or legitimate loan servicers to make themselves sound authentic.
How to Recognize the Scam:
- You get an unsolicited phone call, email, or text message promising “guaranteed” loan forgiveness.
- The scammer tells you that you have to pay a fee upfront to join the program.
- They rush you into action, usually with threats such as “limited-time offer” or “you might lose eligibility.”
- It requires your Federal Student Aid (FSA) ID, Social Security number, or bank information.
Avoid It:
Check with authentic sources – Federal loan forgiveness initiatives, like Public Service Loan Forgiveness (PSLF), are offered by the Department of Education and come at no cost. See studentaid.gov for the facts.
Do not give out personal information – Thieves may use your FSA ID or other credentials to steal your identity or open your loan account.
Report any suspicious behavior – If you suspect something is amiss, report it to the Federal Trade Commission (FTC) or the Consumer Financial Protection Bureau (CFPB).
2. Upfront Fee Scams
Some scam companies promise to lower your monthly payments, lower your interest rate, or roll your loans together—for a significant upfront fee. After they collect the fee, they either disappear or don’t do anything at all to help you.
How to Identify the Scam:
- The company requests an advance fee before doing anything.
- They say they have “special” access to government programs that you do not have access to yourself.
- They promise lower monthly payments or loan forgiveness no matter if you’re eligible or not.
How to Avoid It:
Don’t pay upfront fees – Genuine student loan services, such as loan consolidation and income-driven repayment, will never ask for advance payments.
Use official loan servicers – For federal loans, your loan servicer (such as Nelnet, MOHELA, or Aidvantage) is the best place to turn for help. You can look up your servicer at studentaid.gov.
Understand loan repayment options – Become familiar with true repayment plans and loan forgiveness programs so that you won’t be misdirected by scammers.
3. Phishing Scams (Fake Emails and Calls)
Phishing scams are emails, phone calls, or text messages that mimic a legitimate loan servicer or government agency. The scams want to steal your information and commit fraud or identity theft on you.
How to Spot the Scam:
- You get an email supposedly from your loan servicer but with strange links.
- The message requests your personal information such as your Social Security number or FSA ID.
- The caller urges you to give information or make a payment right away.
How to Avoid It:
Don’t click on suspicious links – Fraudsters use imposter websites to take your login information. Always go straight to studentaid.gov to sign in to your account.
Call your loan servicer – If you are contacted by a phone call or email, reach out to your loan servicer directly via the number on the official website.
Don’t respond to threats and pressure tactics – Federal agencies and honest loan servicers never threaten lawsuit or ask you to pay right away over the phone.
4. Scams for Loan Consolidation
Consolidation of a loan is advantageous if you would like to roll several federal student loans into one payment. But fraudsters offer imposter consolidation services to rip you off and take your sensitive data and funds.
How to Identify the Scam:
- The business promises consolidation approval without verifying whether you qualify for it.
- They charge a fee before accepting your application.
- They ask for your loan account information or FSA ID.
How to Avoid It:
Only consolidate through official channels – The U.S. Department of Education provides free loan consolidation via the Direct Consolidation Loan program.
Be cautious of companies with government-sounding names – A few scammers give themselves names that sound official, such as “Federal Student Loan Assistance” or “Student Aid Services.” Always check for legitimacy on studentaid.gov.
Borrowing Student Loans Securely
Knowing how to borrow responsibly can save you from scams and too much debt. Here are the steps to follow to have a safe and secure borrowing experience:
1. Opt for Federal Loans First
Federal student loans have better safeguards, lower rates, and more flexible repayment terms than private loans. Always opt for federal loans first before seeking private lenders.
2. Select Private Lenders Thoughtfully
If you require a private loan, select a reputable lender with good ratings. Verify the lender’s accreditation by bodies such as the Better Business Bureau (BBB) or the Consumer Financial Protection Bureau (CFPB).
3. Protect Your Loan Information
- Do not give your FSA ID, Social Security number, or loan account information to anyone.
- Monitor your loan account regularly for suspicious activity.
- Utilize strong passwords and two-factor authentication if possible.
4. Be Aware of Loan Terms and Conditions
Prior to signing any loan contract, thoroughly study:
- Interest charges (fixed vs. variable)
- Repayment provisions and choices
- Fees or charges for late payments
5. Keep Informed on Student Loan Scams
Government bodies regularly release reports on current borrower scams. Review websites such as the FTC, CFPB, and Department of Education for warnings and scam notifications.
Tips Beyond Your Basic Protection: Defending Yourself From Student Loan Frauds
In addition to being alert and borrowing judiciously, here are extra methods you might practice to preserve yourself from getting misled and help prevent your security concerns.
1. Cross-Verify Your Loan Servicer Communications
Your loan servicer is responsible for managing your student loans, processing payments, and assisting with repayment options. Scammers often impersonate legitimate loan servicers to trick borrowers into providing personal information or making unauthorized payments.
How to protect yourself:
- Check the official list of federal loan servicers on studentaid.gov.
- If you get an unexpected phone call or message regarding your student loans, call your servicer directly using the contact information on their official website.
- Watch out for servicers that suddenly “change” without warning. The Department of Education will always officially notify borrowers if their loan servicer is being transferred.
2. Set Up Alerts and Notifications
Numerous loan servicers permit borrowers to establish email or text notices regarding account activity. These notices allow you to stay on top of your loan status, payments, and any other suspicious transactions.
Ways to shield yourself:
- Turn on email or text notifications from the loan servicer.
- Carefully review the loan balance and payment history to ensure everything adds up.
- Inform your loan servicer of any suspicious activity right away.
3. Get Educated about Repayment Plans
Scammers target borrowers who do not know about legitimate ways to repay the loan. Learning about your repayment plan options will prevent you from falling victim to scams.
Typical federal student loan repayment plans:
- Standard Repayment Plan – Same amount paid each month for 10 years.
- Graduated Repayment Plan – Lower at the beginning, rising over time.
- Income-Driven Repayment Plans (IDR) – Payments that are based on your income and family size.
- Public Service Loan Forgiveness (PSLF) – Forgiveness of the loan for those who work in certain public service careers.
Learning about these programs helps you identify valid aid and steer clear of scams.
4. Be Careful with “Debt Relief” Agencies
Certain firms market student loan “debt relief” services, promising to lower or eliminate your debt for a charge. Such firms typically charge for services that borrowers can receive at no cost from their loan servicers.
How to protect yourself:
- Be aware that federal student loan relief programs are free.
- Never pay fees for loan forgiveness, deferment, or consolidation services.
- Report scam debt relief agencies to the Consumer Financial Protection Bureau (CFPB) or the Federal Trade Commission (FTC).
5. Safeguard Your Credit Score
Being a victim of a student loan scam may damage your credit score, making it hard to get future loans, rent an apartment, or even get a job.
Protecting your credit in three steps:
- Monitor your credit report every now and then – Get a free credit report copy on AnnualCreditReport.com.
- Challenge fraudulent activity – In case of unauthorized activity, alert the credit bureaus (Experian, Equifax, and TransUnion).
- Keep track of your student loan accounts – If there’s unauthorized adjustment or payment, alert your loan servicer as soon as you detect it.
6. Seek Help from Legitimate Sources
If you’re struggling with student loan payments or unsure about your repayment options, reach out to trusted resources.
Where to get legitimate help:
- Your Loan Servicer – They can help with repayment plans, deferment, and loan forgiveness applications.
- The National Consumer Law Center (NCLC) – Offers legal guidance on student loan issues.
- Student Loan Ombudsman Group – Offers help with resolving complaints concerning federal student loans.
What to Do If You’ve Been Scammed
If you believe you have been a victim of a student loan scam, take action promptly to limit the damage.
1. Contact Your Loan Servicer
- Tell your loan servicer about the scam and see if there are any unauthorized transactions.
- Ask for help to lock down your account and change your log-in credentials.
2. Report the Scam
Report a complaint to the following agencies:
- Federal Trade Commission (FTC) – ReportFraud.ftc.gov
- Consumer Financial Protection Bureau (CFPB) – consumerfinance.gov/complaint
- Your State Attorney General’s Office – Locate your state’s office at naag.org.
3. Freeze or Monitor Your Credit
If you gave personal information to scammers, take additional measures to safeguard your identity.
- Put a fraud alert on your credit report by calling one of the three major credit bureaus.
- Freeze your credit to stop scammers from opening accounts in your name.
- Review your credit report for suspicious activity and dispute any unauthorized charges.
4. Update Your Passwords and Protect Your Info
If you have shared your FSA ID, loan account information, or personal information, update your passwords at once. Create strong, distinctive passwords and activate multi-factor authentication where offered.