Some student loan borrowers are paying third-party organizations to consolidate their federal student loans, enroll in an income-driven repayment plan, or apply for loan forgiveness programs. Many of these students are struggling to keep current on their loans and see this as their only option for relief.
But the very services for repayment relief that they are paying big bucks for are available for free through the federal government.
Targeting current and former students
It’s no wonder that students are falling prey to these companies, when you see commercials aired on major TV networks and mailers that could be mistaken as being from the U.S. Department of Education. It’s unfortunate that students who pay these companies often are not aware that they can sign up for these same programs at no cost by working directly with their loan servicers.
Struggling borrowers who are in repayment aren’t the only target. According to some financial professionals, the companies also are contacting students while they still are in school — especially those who, like medical students, are likely to be high earners in the future.
Students report receiving mailers that offer to help them determine the best repayment plan for their situation or that market ”Obama loan forgiveness,” which the mailer claims is available only if you sign up with that company. Often the mailers look legitimate, but they often contain misleading information.
Some state attorneys general and agencies like the Consumer Financial Protection Bureau have been working to advise consumers and shut down companies that run illegal debt relief services. A recent email campaign by the Department of Education cautioned borrowers and included a sharable video message from U.S. Secretary of Education Arne Duncan.
Protecting your borrowers
As you work with students at your school, you also can help get the message out. You can advise your students about the repayment options available to them and how to contact the financial aid office to learn more.
How can you help your students? Here are some suggested steps.
• Include warnings in your financial aid materials. Include information on your student loan information Web page or in your publications for student loan borrowers that shares these messages:
o “Be wary of student loan assistance scams, expensive loan management services, and private debt consolidators.”
o “Some unscrupulous companies offer to handle paperwork for you (for a high fee). The truth is, all of this is easily done yourself.”
o “Never give anyone your FSA ID/FAFSA PIN.”
o “Nonfederal consolidators may offer lower interest rates, but be sure you read the fine print of those loan terms and understand what repayment programs and benefits you may be giving up by transitioning federal debt to private debt.”
• Offer financial literacy training to educate your students about making wise choices in money management and student loan repayment.
• Keep the information you share with borrowers focused and relevant. Research shows that too much detail can cause a student to tune out the entire message. Focus on the message that there are free options if they are struggling to make a payment — and where to turn if they need help. Caution them about student loan assistance programs that charge a fee, and refer them instead to their servicer or the Federal Student Aid website at www.studentaid. gov.