Student loan scams have become a widespread problem in recent years, taking advantage of people’s financial situations and personal security. The increased focus on student loan forgiveness during the Biden administration has only made matters worse. As questions like “Is there still a student loan forgiveness program?”, “Who qualifies?” and “How much of my loan will be forgiven?” remain unanswered for many, and have left many people confused. And when confusion combines with large amounts of money, it creates the perfect breeding ground for scammers.
Before we talk more about the types of student loan forgiveness scams proliferating the country, let’s first talk a bit more about the programs that are actually available to borrowers, which of course are subject to change. The Federal Student Aid (FSA) Loan Forgiveness Program generally refers to a set of federal programs designed to forgive or reduce the amount of federal student loans for borrowers who meet certain requirements. The most well-known and significant programs under this umbrella include:
- Public Service Loan Forgiveness (PSLF)
PSLF is one of the most recognized loan forgiveness programs. It’s designed for borrowers who work in qualifying public service jobs (e.g., government, non-profit organizations, and certain other public sectors).
- Teacher Loan Forgiveness
This program is for teachers who work in low-income schools.
- Income-Driven Repayment (IDR) Forgiveness
This is an option under several income-driven repayment plans, including Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE).
- Income-Contingent Repayment (ICR) Plan Forgiveness
For borrowers on the Income-Contingent Repayment plan, forgiveness is possible after 25 years of qualifying payments. However, unlike some of the other forgiveness plans, ICR forgiveness may come with a tax liability on the amount forgiven.
- Veterans’ Total and Permanent Disability (TPD) Discharge
If you are a veteran who has a service-connected disability, you may be eligible for a discharge of your federal student loans. This discharge is available for veterans with a total and permanent disability (TPD) status as determined by the U.S. Department of Veterans Affairs (VA).
- Closed School Discharge
If your school closes while you’re enrolled or shortly after you withdraw, you may be eligible for a discharge of your federal student loans.
- Borrower Defense to Repayment
This is a discharge option for borrowers who believe they were defrauded by their school or if the school violated certain laws that led to the borrower’s inability to repay their loans.
For detailed information and current status on any of these student loan forgiveness programs, visit the Federal Student Aid website.
What’s in it for Scammers and How do They Operate?
Scammers are using all of the publicly generated awareness and uncertainty surrounding these programs to try and trick borrowers into paying for services or “loan forgiveness” programs that do not actually exist or do not deliver the promised benefits. These scams typically target individuals with student debt, preying on their desire to reduce or eliminate their loan balances.
Here are some common characteristics of student loan forgiveness scams to watch out for:
- Scammers often ask for an upfront fee to help you consolidate or apply for loan forgiveness, even though legitimate government programs do not require any upfront payments.
- Some scammers claim that they can get your loans forgiven or reduced in exchange for a fee. They might promise to reduce your balance or even cancel it entirely, which is not always possible outside official programs. They may also tell you that you need to act quickly before a certain loan forgiveness program is dissolved. According to the Federal Student Aid Program, most government forgiveness programs require years of qualifying payments and/or employment in certain fields before forgiving loans.
- Scammers may ask for sensitive personal information, such as your Social Security number, bank account, or login details for your student loan servicer.
- Fraudsters often create a false sense of urgency or threat, such as claiming that your loans are about to be “sent to collections” or that you must act quickly to qualify for forgiveness, pushing borrowers to make hasty decisions.
- Scammers might impersonate legitimate programs like Public Service Loan Forgiveness (PSLF) or Income-Driven Repayment (IDR) forgiveness, using official-sounding names to make their offer seem credible.
How to Avoid Student Loan Forgiveness Scams
- Do not pay for loan forgiveness: Legitimate forgiveness programs like PSLF or IDR do not require an upfront fee.
- Verify official programs: Visit the official U.S. Department of Education website or your loan servicer’s website for information on repayment options and forgiveness programs. The Federal Student Aid division does work with private companies, and it’s important to know who they are and what specific free services they provide. All of the information can be found on the Dept. of Education website.
- Beware of unsolicited calls or emails: Be cautious if you receive unexpected communications offering loan forgiveness or assistance.
- If you’re unsure about a program or offer, it’s always a good idea to contact your loan servicer directly or consult official government resources.
