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Student Loan Scams – Scam Alert


Student Loan Scams

The Federal Trade Commission (FTC) recently announced that they have shut down a Student Loan debt relief scam. The companies behind the alleged scams were Mission Hills Federal and Federal Direct Group. Between them, they are said to have scammed more than $23 million.

More than 42 million Americans owe a total of almost $1.5 trillion in Student Loan debt. So, it is no surprise that some people do get tempted by ads that promise to reduce or forgive student debt.

If you do feel tempted to use a student debt relief scheme, be careful. There are dishonest businesses out there that are scamming people.

Not all companies that offer help with student loans are scammers. Even so, there are a lot of different types of student loan scams to watch out for. Here is everything that you need to know about student loan scams.

How to Spot a Student Loan Scam

There are a lot of ads for student loan debt relief companies around. Some of these companies do offer a legit service. Even so, what they are offering is usually nothing more than you could do yourself for free. Some student loan debt relief schemes, though, are nothing more than scams. Here are the student loan scam warning signs to look out for.

Requests for Power of Attorney

Some student loan relief companies will ask for power of attorney. Or, they may ask for third-party authorization. They will say that they need this authorization so that they can talk to your loan servicer about your loans. Providing this authorization gives the company far more power than they need. Some companies will change your loan account contact details. They do this so that you will not realize that you are defaulting on your student loans. Meanwhile, the company is pocketing the loan repayments that you are making them. The payments that you thought were reducing your student debts.

Requests for Your FSA ID and Password

If a company asks you for your FSA ID and password, it is a big red flag. Your FSA ID and password are as binding as your signature, so you should never disclose them to anyone. If you do, a student loan scammer may use your ID and password to make changes to your account without your knowledge or permission.

Claims of a Relationship with the Department of Education

Lots of student loan debt relief companies claim to be working on behalf of or with the US Department of Education (ED). Most of these companies, though, are not in any way affiliated to the ED. The Education Department does use some private loan servicers and collection agencies. The ED publishes lists of the companies that it works with. ED loan servicers will provide income-related repayment plans and loan consolidation service for free. The private collection agencies that the ED works with are listed here.

Upfront Fees

If a student loan debt relief company asks you for an upfront payment, don’t pay it. Watch out too for companies that ask for a monthly payment. It is illegal to ask for an upfront payment for these types of services.

Promises of Immediate Loan Forgiveness

Watch out for any company that promises instant debt cancellation. Student loan debt relief companies cannot promise you immediate forgiveness or cancellation of your student loans. Government forgiveness plans require employment in certain specified fields and/or years of making qualifying payments. Debt relief companies cannot make any special deals or negotiate with federal loan servicers on your behalf.

Time-Limited Offers

Using time-limited offers is a regular tactic of all kinds of scammers. The intention is to make you come to a quick decision without thinking it through first. Student loan scammers like to use this tactic as well. They might tell you that a program is being discontinued soon, so you need to act now or miss out. Official ED debt relief programs are not time-limited. So, if a student debt relief company tells you that you have a limited time to take up an offer, it’s likely to be a scam.

Poor English

Legitimate companies don’t send out documents that contain spelling mistakes and bad grammar. Especially companies affiliated with the educational department! If you receive communications from a debt relief company that has errors in it, treat it with caution. It’s usually a sign that you are dealing with scammers.

Types of Student Loan Scams

Here are the most common types of student loan scams to be on the alert for:

The Advance Fee Scam

We already mentioned that you should never pay any fees in advance for student loan services. Even so, it’s such a common scam that it merits a second mention. Upfront fees are sometimes asked for student loan debt relief services and for arranging loans. This is not a legitimate way to business. You never need to pay fees in advance to get a loan or debt advice.

Fraudulent Debt Relief Scams

Some debt relief companies promise to make repaying your student debt easier for a fee. All they do, though, is enroll you in free federal programs that you could have enrolled in yourself. Check what you are getting for your money before you sign any agreements. And, remember, there should be no upfront fees.

Student Loan Forgiveness Scam

If anyone says they can arrange forgiveness of your student loan, they are lying. Student loan debt can only get canceled under exceptional circumstances. Even if you meet the criteria for loan forgiveness, no one can organize it on your behalf. Companies that offer student loan forgiveness will charge you an upfront fee. But they will not be able to get your student debt canceled.

Loan Consolidation Scam

Loan consolidation can make managing your student debt simpler. It won’t, though, reduce the amount that you pay. Companies that charge a fee for student loan consolidation are scamming people. If you want to consolidate federal student loans, you can do so for free. You can also refinance your student debt. This means taking out a new loan to repay the existing loans. Depending on the terms of the refinancing loan, this may, or may not, reduce your monthly payments. Whether you refinance or you consolidate your student debt, the important thing to remember is that there should be no upfront fees to pay.

Federal Student Tax Scam

Another way that scammers have been targeting people with student loans is to pretend that they are calling from the IRS. The caller will say that they are an IRS agent. They will claim that you owe Federal Student Loan Tax and, if you don’t pay the tax, you risk an IRS lawsuit or arrest. This is another take on a common type of IRS scam, so don’t fall for it. The IRS will never contact you on the phone and demand immediate payment. They will always write to you first. If in doubt, constant the IRS yourself and check it out. More importantly, there is no such thing as Federal Student Loan Tax!

Scam Alert, Student Loan Scams, Student Loans, Fraud, Scams, Debt Relief Scams


Unfortunately, scammers love to target those who are most vulnerable. People who are struggling to repay their student loans are a prime target. If you do feel that you are sinking under your student debt, talk to your lender. There is nothing that a student loan debt relief company can do for you that you can’t do yourself. For more information on student loans, visit

Thanks for reading our post about student loan scams. We hope that it has been useful. If this post was helpful, please do share it with your friends on your social media accounts.

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Many thanks again for visiting Best Panic Alarm. Have a great day, stay safe, and watch out for those scammers!


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Student Loan Scams – Scam Alert


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