Here’s a recipe for creating con artists: $1.2 trillion in student loan debt, owed mostly by people who still don’t consider themselves adults, plus a handful of federal aid programs the government doesn’t explain very well.
Slap together a website, tell people you’re offering a made-up “Obama forgiveness program,” charge between $550 and $1,200 to help grads through the process — with no intent of actually helping them at all — and you’re in business. For a little while.
Last week, Illinois Attorney General Lisa Madigan filed lawsuits against companies called First American Tax Defense and Broadsword Student Advantage. Consumers have filed a combined 143 complaints with the Better Business Bureau against those companies in the past year alone, and both have an F rating with the BBB. The lawsuits accuse them of…
- Charging big up-front fees for services that are actually free from the federal government
- Not actually providing any “meaningful assistant to reduce consumers’ student loan debt”
- Advertising heavily and claiming to be affiliated with the U.S. Department of Education
- Promising to cut student loan payments in half or even eliminate them
- Promising loan forgiveness to people who don’t qualify
Madigan is seeking penalties of up to $50,000 per violation of three consumer protection laws, which could stack up fast if a judge sees things her way.
Debt settlement companies gone wild
“Even before the Illinois action on Monday, borrowers across the nation had lodged hundreds of thousands of complaints with the Federal Trade Commission about debt settlement and debt collection companies,” The New York Times wrote last week. The volume of problems has ballooned as the loan business has boomed. More than 200,000 such complaints were filed in 2013, up 10 percent from 2011.
The bad guys eventually get caught. But it’s little consolation to the people who’ve already been stung and were struggling to start with.
For instance, the lawsuit against Broadsword tells the story of a public school teacher who heard the company’s radio ad about free help, called for information, and was pressured into signing up for $500. She was told she qualified for loan forgiveness and that they would take care of it for an ongoing charge of $50 a month.
When she followed up a few months later, company representatives waffled on whether she was actually qualified, and the school where she worked eventually told her she wasn’t.
“In other words, after eight months of paying defendants a total of $898.60, the consumer learned from her school that she in fact was not eligible for student loan forgiveness as originally told on her first call with defendants,” the lawsuit says. All while the balanced on the unpaid loans continued to grow.
Forbes contributor John Wasik calls companies like these “debt demons” — calling them “rapacious scoundrels going under the guise of ‘debt settlement’ companies.” They go where the money is, and right now that’s student loans. The demons will get exorcised eventually, but what do you do when you’re struggling now?
Getting the student loan help you need
Because nearly all student loans are backed by the federal government, anything these companies can offer — anything real, at least — can also be arranged for free. Just like doing your taxes, you don’t need a middleman. You can do it online at www.studentloans.gov without running the risk of any student loan scams.
The Department of Education has an entire website devoted to explaining how student loans work and your options for repaying them. There are five main programs to consolidate your loans into a better payment plan: standard, graduated, income-based, income-contingent, and pay-as-you-earn. You may have three options, or you might not qualify for any. Forgiveness is a whole separate issue.
Things can get real complicated because of all the different kinds of student loans — the above site names 11 types — and different rules for loans from different time periods, as well as different options depending on where you work and how long you’ve been there. Just like taxes, things can get messy, and many people want an expert to hold their hand instead of reading (and maybe misunderstanding) the fine print.
Finding professional help
Fortunately, not all companies offering student loan help are ripoffs. Richard Cramer is president of South Florida-based Campus Debt Solutions, a company started early last year to guide grads through the process.
His company has already helped thousands of people enroll in federal student loan programs, and have only five BBB complaints in the past year to show for it. That’s a pretty good reputation, so far — the company has an A- rating, only getting dinged by the BBB for the length of time it’s been in business.
“If clients elect to enroll in our student loan protection program, their loans are consolidated into the best possible program, they are guided completely through the process, offered a 100-percent money-back guarantee, given financial education tools, and assured they can call us any time if anything changes in their lives that may qualify them for a more favorable program,” says Cramer, an MBA with 25 years of experience as a business executive.
Here’s what Cramer says to watch out for when seeking professional help…
1. Up-front fees. There shouldn’t be any. “Consumers should be very wary of any companies that accept up-front fees and do not protect the clients’ investment prior to the service being completed,” Cramer says. “Our clients take comfort that unless we complete the service and deliver what we committed to, the funds remain in a third party account owned by them.”
2. Sales pressure. “Consumers must be careful of services that are pushy and try to force them into making a quick decision,” says Cramer. “This is an important decision relative to their financial lives and they should feel fully comfortable before moving forward.”
3. Affiliation. Don’t trust a company that claims to be part of the Department of Education or a loan servicer. “Consumers must be careful of any service that promises forgiveness or in any way communicates the company themselves are consolidating the loans,” says Cramer. “We are but facilitators of the process.”