How to Recognize and Avoid Student Loan Repayment Scams

A student picks up the envelope for her loan repayment; she hopes to avoid loan repayment scams.

Cheryl Savan /

As much as we hate to, we have to face reality. Scam artists are out there, and they pity no one, not even broke college students. It’s almost guaranteed that the summer after receiving your diploma, you’ll receive an email that reads: “Hey there, recent grad! You have been approved for a new student loan forgiveness program.” Or, you might turn to Google to search for the best repayment program available and fall into a trap set by Robin Hood’s evil twin. It’ll all sound good—too good to be true—and most of the time, unfortunately, it is. The best way to avoid student loan repayment scams is to know how to spot them.

The Telltale Signs of a Loan Repayment Scam

Often, if you are contacted out of the blue from a strange phone number or email address, it’s someone trying to swindle you. Google anything suspicious just to be sure and keep an eye out for three warning signs.

  • Payments upfront: Always take a step back if you’re being asked to pay for a service that has yet to be completed. There are tons of scams that ask for an advance fee just so that the masterminds can run off with your money without doing the promised work. Inquire about payment plans that ensure completion of the work and read over any documents that you’re asked to sign. Do not give out your credit card or social security number without being sure that the company will protect that information and do the work it says it will.
  • A consolidation application fee: There are legitimate businesses out there that will help you with your repayment plans. That isn’t to say that they aren’t taking advantage of students who are facing financial challenges and desperate to get their loans paid off. These companies offer to do all the work on your behalf so that you can focus on your career and life after college. The catch is that applying for federal consolidation is actually completely free. So, you’re paying someone hundreds of dollars to do a task that would cost you nothing.
  • Guaranteed complete loan forgiveness in exchange for information: It is very, VERY rare for student loans to be completely forgiven. In fact, bankruptcy won’t stop the bills (death might), which usually means that you have to repay your loans no matter what. There are a handful of specific situations that may call for loan forgiveness, cancellation, or discharge, and you can learn more about them here. There are also programs that will forgive loans up to a certain extent in exchange for work (these are usually for people starting careers in law, teaching, and medicine). However, this is a question for your loan servicer, not an outside party. If you are asked for personal information, such as your social security number or credit card number, run! It’s a scam. In most cases, total loan forgiveness is just too good to be true.
A student researches for student loan scams to learn how to avoid them.

wavebreakmedia /

What to Do if You Are the Victim of a Scam

First off, don’t panic. Falling for a scam can happen to anyone, and you can’t beat yourself up over it. They don’t call them scam artists for nothing; these crooks are good at painting pictures of all your wildest dreams and then taking advantage of unsuspecting victims. All you can do now is pick yourself back up, and take action to make a difference.

As soon as possible, alert the major credit bureaus. Your bank has probably used each of these: Equifax, TransUnion, and Experian. You can report a possible scam to them, and they can place a hold on your credit. Then, contact your bank or credit card company to dispute the fee. While you might not get all of your money back if the fee was already charged, you can protect your personal information, like social security number or FSA ID. To protect your FSA ID, contact the Office of the Inspector General. It can help you decide what action to take next. In order to report the business and in turn save other students from your fate, contact the Consumer Financial Protection Bureau online or by phone at (855) 411-2372.

Finding Trustworthy Repayment Assistance

An honest company will not charge you an upfront fee; it will take a percentage later on. Your lender can provide you with a list of options. Otherwise, your only options for loan cancellation or forgiveness are program-specific. If you join the Peace Corps, for example, you volunteer for a certain amount of years to earn partial loan forgiveness. There are also private programs for doctors and physicians who practice in areas that express a shortage of professionals.
Learn more about paying back federal loans on our site.

About Katelyn Brush

Katelyn likes learning, good health, traveling, and pizza on Fridays. Her mixed education, composed of SUNY the College at Brockport, a semester at a community college, and one abroad at the University of Oxford, helped her earn a bachelor’s degree in English. College also gave her a few lessons in Taekwondo and sleeping in a hostel dorm with total strangers. She’s a yoga teacher, author and illustrator of the children’s book, “Signing Together: A Guide to American Sign Language for Everyone.” As a Student Caffé writer, she hopes to help you through the highs and lows of college with a laugh ... or 20.

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