Student loans are the major financial burden graduates face when they leave college. Most private and federal student loans give a six month grace period after graduation before the first loan payments are due.
During this grace period, scammers try to take advantage of unsuspecting students. Here are some tips that will help protect a recent graduate from being victimized by a scam.
An advertisement promising loan consolidation is the most popular scam. It is aimed at recent graduates. The reason this is the most common scam is because many graduates have several student loans.
The scam promises to consolidate all of the loan payments into one single payment. In some scams, the graduate is promised that his or her loan payments can be lowered. The consolidation company requires an administration, processing or consolidation fee, saying that after the graduate pays the fee, the loan will be consolidated.
There are three reasons this is a scam:
The Federal Direct Consolidation Program is the only way federal student loans can be consolidated. It takes about 20 minutes for a graduate to call and do the paperwork to achieve this. There is no fee, and any consolidation program that requests an up-front fee for any reason is a scam.
If the graduate gets involved with a scamming consolidation program, there is a good chance the graduate’s loan will be moved into a private loan that will be more expensive that their original loan.
Finally, the worst-case scenario is the consolidation company takes the fee and does nothing for the graduate.
Another scam is the advanced-fee scam. This scam involves a company that offers to lower the interest rate on student loans in exchange for an up-front fee. The fee is supposedly to pay for the company to negotiate on behalf of the graduate with the loan provider.
One thing common with this scam is the supposed client list. The graduate will be shown several previous clients who were able to lower their interest rate. They will give numbers that supposedly prove the amount the graduate could save on interest.
This is a scam because genuine lenders do not charge up-front fees. Legitimate lenders take a fee at the closing of the loan from the loan amount, so the graduate pays nothing out of pocket. Again, if a company asks for an up-front fee, the graduate should run away.
The third most common student loan scam is the total elimination scam. A company will promise a graduate that they can negotiate to have the loan eliminated. This is totally false and should be avoided at all costs.
In some cases, the same companies that offer to lower interest rates for a fee may also offer to have the loan forgiven for a larger fee. There is no way anyone can get a student loan eliminated, which is why this is a total scam. The scammers make their money from the advanced fees they require from clients.
Scammers are successful because they prey on graduates when they are the most vulnerable. Buried in debt and basically uninformed about loan repayment, graduates succumb to the scammers attractive ploy. Some ways a graduate can be protected are:
Never pay anything in advance. Genuine loan companies and other lenders take a percentage of the loan when everything is finalized. The borrower doesn’t pay anything up-front.
Scammers may ask the graduate to sign a Power of Attorney to allow the scammer to negotiate on the graduate’s behalf. This should never be done. If this type of document is signed by the graduate, the scammer will have control of the loan and can hold the graduate hostage over interest rates and repayment schedules.
Some points graduates should remember:
• Never pay in advance to get help
• Beware of the words Federal and National in the title of a private company
• Never believe that the student loan can be eliminated outright
• Avoid companies that pay for advertising on search engines or social media
If the graduate has a problem paying his or her loan, the best course of action is to call the lender directly. There are a lot of ways the lender can help, and it is not difficult to do. Graduates can get deferment of payments, forbearance, different payment plans and more.
One of the main reasons scams have popped up is because the paperwork for help on student loans can be daunting, so graduates turn to a third party for help.
A graduate’s best recourse for consolidating or lowering the interest on their student loan is to deal directly with their lender or the Department of Education and not depend on or pay a third party to do it for them. Also, up-front fees may be expensive and this money could be going towards paying the original debt.