I’ve been inundated with questions from concerned readers over the past few months about the tactics used by student loan consolidation companies to recruit clients and borrowers. The concerns are simple but chilling: Are these promises too good to be true? They want money upfront, I’m worried? Company XYZ asked me for my PIN, are you ok?
The thing is, these companies can’t do anything that you can’t do yourself. If the company is legit, all it will do is file documents on your behalf and charge you for it. Here’s what to look for.
Student loan consolidation and aid companies aggressively advertising borrowers
These student loan consolidation companies, or student loan aid, or other variations, have been aggressively advertising to borrowers, especially those in need of help.
Lately, you can find these companies targeting borrowers on Facebook, through direct mail ads that look very official, and even cold phone calls. Many of these companies pay for private for-profit college student rosters. These schools will sell the contact information of students who have used financial aid, and these student loan “help” companies are aggressively marketing them.
When these companies contact a borrower, the conversation usually focuses directly on how much money you can save — not how or through which program. Usually, the company will ask you for your loan balance and then immediately tell you how much you could save or be forgiven. Sometimes they just say they can lower your payment and NEVER tell you how.
All of these tactics should be red flags for student borrowers. here is a list of companies known to aggressively market to borrowers.
What these companies really do
In reality, these companies, if operating legally, simply do the following:
– Provide basic loan advisory services (usually for the sole purpose of identifying the best alternative)
– File the papers for the borrower
– Collect a fee
What borrowers don’t realize is that just about anything these companies offer the borrower could do on their own. All these companies do is: 1) change the repayment plan 2) set up a deferment or forgiveness program 3) offer consolidation options. These three options are available to eligible federal borrowers and some private borrowers.
Avoid student loan scams
The thing to remember is that these legitimate companies “help” students and borrowers for profit. However, there are also many unscrupulous companies that offer the same promises but don’t deliver.
One of the most common student loan scam is called the advanced fee scam. This happens when a company promises to offer a lower interest rate or loan forgiveness, but only after you pay the fee. Generally, these companies ask for fees between $350 and $700, or even more. Once you pay the fees, the business disappears and nothing happens with your loan.
Real companies will ask you to pay the fees in installments – usually 3-5. One will be up front, and the rest will be for the duration of the process. Although you don’t even have to pay for the service (especially for $500 or more), a real business won’t ask for all of the payment up front.
Remember you can do it all yourself
The thing is, every borrower can do all of these things themselves. These student loan consolidation companies simply ask you to sign a power of attorney for them and fill out the forms for you.
You can just call your lender and fill out the forms yourself and get the same results. Here is a great guide to the Good way to consolidate your student loans.
The next time you see an advertisement for one of these companies, think twice about giving them your money. Instead, take that extra money and pay off your student loan debt.