It’s always fried my bacon how many companies exploit people in debt. From debt collectors to “debt repair” firms, they are always out there.
A few years ago, I reported on firms that charged student loan holders fees to reduce or consolidate their college loans. These “debt relief” firms are still operating and only a handful have been sued. The watchdogs can’t keep up with them. (Note: My research led to a book on these scams and how you can obtain a debt-free degree.)
Student loans are a pox on society. Not only have they climbed to more than $1.4 trillion, they are financially crippling more than 43 million Americans, who find that they can’t buy cars, homes or start families.
NerdWallet recently studied the problem and cast a wide net over this predatory sub-industry. They found rampant abuses by researching the companies that charge fees to lower college loan payments.
Although only “seven of the 130+ businesses listed have been closed by U.S. government agencies,” NerdWallet’s team found “hundreds of companies profiting from student loans and the 44 million people shouldering nearly $1.5 trillion in outstanding student loan debt.”
The report discovered the following abuses and created a watchlist (see below) of the companies:
— “So-called `debt relief’ companies charge borrowers to do things that are available for free, such as consolidating loans or signing up for federal repayment plans. NerdWallet conducted a survey last year that found the average amount borrowers were charged by these companies like this was around $600.
— The worst offenders gain power of attorney, IDs and passwords to access loan accounts — and let them lapse.
— The abuses are widespread. The state of Washington recovered more than $1.2 million in student loan debt adjustment fees for borrowers in 2016 alone. Those cases involved just 15 companies. Multiply that by 50, and you get an idea of how much money consumers are spending needlessly across the country each year.”
What You Can Do
You have several remedies if you want to lower your loan repayments or extricate yourself from one of these debt relief contracts. Brianna McGurran, NerdWallet’s student loan expert, suggests:
To avoid paying for help you could otherwise get for free, first find out what loan servicing company has your account. That company is paid by the U.S. government to help you deal with your loan using tools the government makes available for free.
It’s possible you have more than one servicer, if you have multiple loans. If after talking to your servicer you want more help, stay away from companies that charge upfront fees before services are provided — advance fees are almost always illegal.
Also watch out for monthly `retainer’ fees and/or an amount that is a percentage of your loan balance.
Legitimate businesses will not ask for your FSA ID, PIN, Social Security number or other personal details, and will not ask you to give them power of attorney.
Consumers already interacting with a debt relief company they no longer trust can cancel the contract and ask for a refund; change their FSA ID, PIN, bank account password or other details they may have provided the company; stop paying any monthly fees; and tell their loan servicer what’s going on.
Your loan servicer should not accept any payments coming from the debt-relief company’s name or address.
Also, consumers can file complaints with their state attorney general’s office, the FTC, CFPB and the Better Business Bureau. These agencies, and members of Congress, won’t know what these companies are up to unless they hear from consumers.
Consumers looking for help from the pros work with a nonprofit credit counseling agency. Those affiliated with the National Foundation for Credit Counseling charge $50 to $200 for student loan assistance, an amount that covers multiple sessions during which borrowers will receive individualized help from a trained counselor.
Want to know which companies are on NerdWallet’s “watchlist?” Go here.
If you want to avoid these firms and you have federal loans, use the Department of Education resources. They are free! You won’t be charged for filing an application to consolidate or reduce your federal debt repayment plan.