Watch-out for Student Loan “Help” That Does More Harm Than Good

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By Consumers Union on Monday, July 14th, 2014

Illinois’ AG goes after companies trying to spring the debt settlement trap on student loan borrowers

Student loan debt settlement companies’ advertisements say things like, “Your entire student loan can be forgiven” and “Stop wage garnishment.” But according to lawsuits filed today by the Illinois Attorney General, two companies making those claims aren’t helping consumers. Instead, these companies charge hundreds and even thousands of dollars for their services, preying on vulnerable consumers struggling to repay their debts, while offering no real relief. The AG’s office says these lawsuits are the first “to crack down on an emerging industry of scam operations charging large upfront fees for bogus services or for government services that are already free of charge.”

According to an article in yesterday’s New York Times, as student loan debt has climbed, debt settlement companies have moved away from targeting consumers with mortgage and credit card debt and are now going after consumers with student loans.  Debt settlement companies, such as Broadsword Student Advantage and First American Tax Defense, the defendants in the Illinois cases, sell their ability to “help” stressed-out, stretched-thin borrowers.

In some instances, debt settlement companies take money in exchange for what is often an illusory promise of relief. Often these companies do nothing more than what you can do yourself. First American, for example, claimed to offer relief from loan principle. In fact, First American doesn’t negotiate with creditors, and merely helps consumers apply for loan consolidation, something that is provided at no charge through the Department of Education.

Be careful! With more than $1 trillion outstanding in student loans, there are probably many more First Americans and Broadswords out there. We’ve warned about debt settlement for years. The types of tricks that First American allegedly used are typical of what we’ve seen. Debt settlement providers will claim quick relief, but there is no such thing. Reducing debt takes time, no matter what someone trying to sell you something says. Moreover, debt settlement services can be expensive, and may not pay for anything more than what you can do yourself. Also, some companies lie about their success rates. Do your homework and don’t get sucked in.

Sad to say, it’s easy to get fooled because the ads for these types of  ‘services’ are everywhere, and Debt settlementit can be hard to tell just what they are selling. There’s a debt settlement company that advertises on a billboard not too far from this office (see photo, courtesy of Shawna Reeves) but nowhere on the ad does it say, ‘debt settlement.’ Sometimes the ads are even closer to home. A few days back, a colleague got an email with the subject line, “student loan forgiveness programs.” The text says, “We are happy to bring to your attention that the government has programs that offer to forgive the remaining-balance of your SL. Please see what programs can help you” – then it links to a website. From what we can tell, the website is simply collecting information so that another company can try to sell us something, probably debt settlement services. We won’t be buying them.

To help you avoid getting ripped-off, we have tips for avoiding a debt settlement trap and advice to help you find real debt relief here.

UPDATE July 15:

For folks looking for no-cost help with student loans, read this consumer advisory, “You don’t have to pay someone to help with your student loan,” from from the Consumer Financial Protection Bureau.

Have you been taken-in by a company offering to “help” you with your student loans? We want to hear from you! Tell us about it here.

 

One response to “Watch-out for Student Loan “Help” That Does More Harm Than Good”

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