Student loans can sometimes feel like a scam. Actual student loan companies like Navient, which provide student loans, have been embroiled in lawsuits and allegations from states like Pennsylvania, as well as the Consumer Financial Protection Bureau.

The worst student loan companies may appear to be scammers, but there are actual student loan forgiveness scams that borrowers may encounter.

When loan holders seek help with some aspect of their loans, like reducing their balance or monthly payment, for example—or repaying their loans faster, stopping payments temporarily, or getting loans out of delinquent status, student loan scammers may make it difficult for them to get actual help.

For you avoid these scam, ou need to be aware of them first and that is the objective of this article. We will let you in on 10 of the common student loan scams and how you can avoid them.

• 5 Common Student Loan Scams and How to Avoid Them
• Six Things to do to Avoid Student aid Scams
• What is the Most Common Type of Student Loan?
• Who are the Largest Student loan Providers?

5 Common Student Loan Scams and How to Avoid Them

Here are the worst and most common student loan scams you might encounter and how to identify them so you won’t get your money stolen or your credit trashed.

1. Filling Out Forms for a Fee

Do you want to lower your monthly student loan payment to an amount you can afford based on your income? You can pay someone to complete an income-based repayment plan request for you, but you can also fill out the application yourself.

Read Also: The 10 Best and Most Creative Ways to pay off Student Loans Faster

Income-based repayment application forms are available for free at the official federal student aid website, StudentLoans.gov. The same is true of deferment and forbearance applications.

Paying For the Help You Need vs. Getting Scammed

If you choose to pay someone for help in completing these forms and you know you have the option to complete them for free, that’s fine. But some companies have taken advantage of borrowers who don’t understand their options. They’ve charged them for help without explaining the free alternative.

How would you feel if a tax prep company told you the only way to get your tax refund was to pay them to complete and file your tax return? The truth, as most people probably know, is that you can do your taxes yourself for free.

You can even file your returns electronically for free if your income is below a certain level; if it’s not, you can file your return by mail for free.

Some people find the process confusing and time consuming, so they hire a tax accountant, visit their local tax preparation store, or pay for tax software.

They might find that the service pays for itself in the time and frustration it saves them, and that they might even owe less in taxes—more than offsetting the tax prep fee they choose to pay—by getting professional help.

Free Repayment Options and Loan Consolidation

Likewise, legitimate services exist to help borrowers evaluate their student loan repayment options and apply for the program that best suits their needs. It is possible to make costly mistakes when repaying your student loans.

But to avoid getting scammed, it’s important to know that paying to apply for deferment, forbearance, or a different repayment plan is optional. Neither the federal government nor the private companies that service (collect payments) on student loans charge borrowers money to request different loan terms.

The same is true of federal student loan consolidation. You can complete and submit the student loan consolidation application yourself for free. Private student loan consolidation does not exist, but you may be able to combine several private student loans into one, and lower your interest rate, with a refinance.

Any loan fees associated with refinancing will not be charged until your loan is finalized and are usually deducted automatically from your loan proceeds. You don’t have to pay anything upfront.

2: Getting Loans Forgiven, Cancelled, Discharged, Reduced, or Eliminated for a Fee

What borrower wouldn’t love to have their debt erased? Unfortunately, the reality is that when you borrow money, you almost always have to repay it in full, with interest. Even if you die, your estate may have to repay your debt—or any taxes on forgiven debt—before any assets you left behind can be distributed to your heirs.

Between the way that borrowing laws and tax laws are written, it’s safe to assume that if a company promises to negotiate a student loan debt settlement on your behalf, it’s a scam.

If they say they can help you get your student loans discharged in bankruptcy, don’t believe it. They also can’t get your debt eliminated by representing you in a lawsuit against your student loan company.

Scams in this area typically involve telling the borrower that if they pay a large sum to some company, the company will get their loan discharged. In some cases, they might tell the borrower to send their student loan payments directly to the company instead of to their student loan servicer.

Either way, the result is likely to be that the company takes the borrower’s money and the borrower falls behind on their loan. They end up owing even more because of the additional interest and late fees that accrue, and their credit scores may drop when the loan servicer reports the late payments to the credit bureaus.

Public Service Loan Forgiveness (Not a Scam)

Public Service Loan Forgiveness may apply to certain federal loans in limited circumstances. This program has been rife with problems since the first borrowers became eligible for forgiveness in October 2017. Teacher loan forgiveness and Perkins loan cancellation may also be available to borrowers with eligible employment or volunteer service.

Federal student loans can only be discharged in the following circumstances:

• Total and permanent disability
• Death
• School closure
• False certification
• Unpaid refund

Again, if one of these situations applies to you or a family member, the forms are available for free at StudentLoans.gov.

3. Requesting Personal Details

The U.S. Department of Education will not contact you and ask for personal details such as your Social Security number, account number, date of birth, FSA ID number and password, address, or account balance. Nor will your student loan servicer or a government-contracted private collection agency. But scammers will.

They might try to fool you by asking you to “confirm” your information. That could sound like a legitimate request: They need to make sure that they’re actually talking to the borrower, right? If you find yourself in this situation, disengage. Don’t worry about being rude. End the interaction immediately. Your financial health could be at stake.

Think about it: If the entity requesting such information was reaching out to you, they would already have this information.

If a letter, email, or phone call you’ve received seems legitimate but you’re not sure, here’s how to check: Do not call the phone number listed on the letter or send information to the address it provides.

Don’t reply to an email, call a phone number provided in an email, click on any links, or download any attachments. Tell a caller you’re not available right now and hang up.

Then, contact your student loan servicer directly using the information at the servicer’s official website. They’ll be able to look up your account and tell you whether the letter, email, or phone call you received was real or fake.

What could happen if you fall victim to this scam? Identity theft. Unauthorized changes to your student loan account. Damage to your credit. Way too many wasted hours cleaning up the mess.

4. Loan consolidation scam

If you study in the US, once you graduate you might decide to combine your student loans into one big loan, called a consolidation loan. There are lots of benefits to doing this, for example, it makes it easier to manage your loan and you might get access to longer repayment terms. Be aware, however, that there are plenty of firms trying to scam you.

These fraudulent firms often charge a consolidation fee, which they claim will cover the cost of processing and administration, but these costs actually do nothing.

These fraudulent firms often target private student loan holders, as federal student loan holders can consolidate their student loans for free at StudentLoans.gov.

5. Law Firm Lawsuit Student Loan Scam

This is a scam where a law firm will claim to be able to settle your student loan debt. There are a lot of variations on this scam, but typically a borrower is referred to a law firm by a “student aid company”. The student aid company promises that this law firm can settle your student loan debt for thousands less than you owe.

Many times the law firm will ask you to make your full student loan payment to the the law firm itself (or whatever amount you can afford to pay). The law firm says they’ll then negotiate a settlement with your lender.

However, what typically happens is that this law firm doesn’t make any payments while negotiating with your lender – as such, you go into default on your student loans. At that point, the law firm will then claim you can’t pay your bills, and try to negotiate a settlement based on that.

What happens to you, as the borrower, is that your credit score is trashed, and you made thousands of dollars in payments to the law firm. In the end, there is no guarantee that you will be able to settle your loans. And even if you do, the process may take years, and you’ll still have to deal with the settlement in the end.

Scam Or Bad Service?

There are times when it’s not a scam, but it just seems like one because the customer service is bad or paperwork gets “lost”. For example, I get a lot of readers asking about the FedLoan Servicing Scam. FedLoan isn’t a scam, but just a poorly run student loan servicing company that is looking out for their own best interest.

Student Loan Servicer is actually the code word for “Student Loan Collection Agency.” Another one I get asked a lot about is NelNet, especially when it comes to their KwikPay Service. Once again, not a scam, just a poorly run program that is incentivized by the collection of full payments. 

Six Things to do to Avoid Student aid Scams

So, what can you do to avoid these scams? Although scams are never 100 percent avoidable, there are a few things you can do to minimize the risk of being subject to a student loan scam.

Find out which companies the US Department of Education works with

Don’t immediately trust a company which claims to have a relationship with the US Department of Education. Third party companies offering private loans don’t have any affiliation with the Department of Education.

However, if you have a federal student loan, there are private companies who handle the billing and other services, such as repayment plans, on behalf of the US Department of Education. Private collection agencies also help federal student loan borrowers, by telling them their options.

Look up your student loan servicer

Student loan servicers manage your student loan debt on behalf of your lender (which may be the US Education Department if you have a federal loan).

You can use your student loan provider to answer any questions about your loans, help you decide which repayment plan suits you and help you switch to a new plan at no cost.

It’s a good idea to find out who your student loan servicer is and what their contact details are. If you have more than one student loan, perhaps a mix of federal and private student loans, you may have multiple student loan servicers.

You can find your federal student loan adviser by visiting StudentAid.gov. If you receive an email and are unsure whether it really came from your student loan servicer, check the web portal or call your servicer to confirm.

Don’t pay to make changes to your student loans

As stated previously, your student loan servicer will help you change your student loan plan at no cost, so you really don’t have to pay anyone to help you with this. 

If you’re looking for more guidance about your student loan, the Federal Department of Education will provide this knowledge for free and will help you process applications for income-driven repayment, consolidation deferment and forbearance – all for free!

Don’t believe companies which say they can reduce or eliminate your student loan

There’s no shortcut to student loan forgiveness and these companies will just try to extract money from you without making changes to your student loan debt.

Protect your personal information

Your student loan servicer, government contracted private collection agencies, and the Department of Education, won’t contact you to ask personal information.

If you get asked for your bank account number, your credit card number, your date of birth, FSA ID number and password or your social security number, the company may be attempting identity theft.

If you think you might be being scammed, call the service provider directly to ask about any queries.

Change your password if it has been shared

If you have given out personal information to someone claiming to be a student loan servicer over the phone, you should change your Federal Student Aid (FSA) ID password immediately.

What is the Most Common Type of Student Loan?

Though there are two major sources of student loans — federal and private – the federal side dominates the action, both in the amount of money available and loan repayment programs.

There were 20 million students enrolled in colleges and universities in the fall of 2019 and approximately 10 million of them received federal loans from the William D. Ford Federal Direct Loan Program. The students took in $93 billion in loans, or about $9,300 per student.

The average student loan debt for 2019 college graduates who borrowed, was $29,900, according to Mark Kantrowitz of savingforcollege.com, and 70% of graduates left school owing money.

Private student loans are available, but every expert, even those who work for banks and credit unions, advise students to exhaust all avenues for federal aid first. Private student loans have some conditions and terms — very good credit or a co-signer needed – that make them difficult to obtain.

The interest rates usually are higher than those on federal loans and there are some terms involved that aren’t part of federal loans.

Student loans come in many shapes and sizes, and the regulations for them can be different as well. There are several types for which you may be eligible.

Types of federal student loans

The federal government provides these loans, and Congress sets the interest rates each year. They come with useful protections like the ability to tie payments to income when you graduate or get loans forgiven if you work in a public service field.

Most federal loans don’t require a co-signer or good credit; nearly every student with a high school diploma is eligible to receive them. Fill out the Free Application for Federal Student Aid, known as the FAFSA, to apply.

DIrect Subsidized Loan

There are two types of federal direct loans: subsidized and unsubsidized. Undergrads with financial need can get the subsidized version.

The government pays the interest on these loans while you’re in school, in your grace period or pausing payments through deferment. Your college will tell you whether you’re eligible and how much you can borrow.

DIrect Unsubsidized Loan

You don’t need to show financial need to get unsubsidized loans, and they’re an option for both undergrads and graduate students. You’re responsible for paying interest at all times.

Perkins Loans

Until September 2017, these were available to undergraduates and graduates with particularly high financial need. Students borrowed money from, and repaid it to, their school.

The government isn’t making new Perkins loans for the 2019-20 school year. But those with outstanding Perkins loans who work in public service careers may be eligible for Perkins loan forgiveness.

PLUS loans

Federal direct PLUS loans are available to both graduate students and parents. They have higher interest rates and origination fees than other federal loans, and they require a credit check. Borrowers with “adverse credit history” will have a harder time qualifying, but they can apply with an endorser, also known as a co-signer.

Types of private student loans

Banks and other financial institutions make private loans to students. When you apply for private loans, the lender will want to see proof you can repay it, usually in the form of a good credit score. A co-signer can help you qualify; that person will be responsible for the loan if you can’t pay it back.

Private loans are available for specific circumstances if you need them.

Bar Exam Loan

These loans cover expenses traditional student loans won’t — like prep classes, living expenses and exam application fees — while law students or graduates study for the bar exam. Loan terms range from one to 20 years. Bar loans also typically have higher interest rates than private or federal student loans do.

International Student Loan

Students who aren’t U.S. citizens generally won’t qualify for federal student loans (unless you’re an eligible noncitizen). Several private lenders offer loans for international students, and they often require a U.S. citizen co-signer.

Medical School Loans

Private student loans may offer lower interest rates than federal loans for medical students with good credit. But they don’t come with forgiveness options if you work for a nonprofit hospital after graduation, which would qualify you for federal Public Service Loan Forgiveness.

Student Loans for Bad Credit

Most federal student loans don’t require a credit check, so they’re your best option. If you need more money for school, a handful of private lenders offer loans specifically for borrowers with bad credit. They’ll decide whether to lend to you based on additional factors like earning potential.

Student Loan Without a Co-signer

Undergraduates in particular often need a co-signer to get a private loan. But if you don’t have access to one, a few lenders will assess your ability to repay according to factors beyond credit history, making it more likely you’ll qualify on your own.

State Loans

Many states offer their own loan programs, but they generally behave more like private loans than federal loans. Examples of state lenders include:

• MEFA (Massachusetts).
• RISLA (Rhode Island).
• EDvestinU (New Hampshire).
• Advantage Education Loan (Kentucky).

Search the U.S. Department of Education’s database of state loan options to see what’s available where you live.

Credit Union Loans

Credit unions and community banks offer private loans, too. If you have an existing relationship with one of these institutions, you may have access to more favorable terms and discounts on your loan than larger financial institutions offer.

Who are the Largest Student loan Providers?

Comparing your options before taking out a student loan can help you find the best lender, and loan, for your situation. Interest rates and fees directly impact your overall cost of borrowing, and are certainly important to consider, but don’t stop there. Repayment plans, co-signer release options and other benefits can all be important.

We started our search for the best private student loan lenders by finding the 10 largest. Each lender then received grades for its options or performance in these seven core categories:

• Interest rates (all rates current as of January 1, 2019): Many private lenders offer variable- and fixed-rate student loans. Most advertise an annual percentage rate (APR) range, although with either type of loan the rate you receive can depend on your creditworthiness, co-signer and current market rates. We gave each lender a grade for its low-end and high-end rate for both variable- and fixed-rate loans. Lenders got a grade based on how their rates compared with the average rates of all 10 companies, with the highest grade going to those offering below-average rates.
• Availability of interest rate reduction with autopay: All 10 of the largest private student lenders allow you to lower your interest rate by signing up for autopay. The discount can range from 0.25 to 0.50 percent, and the most points were awarded to the lenders with the highest discount.
• Fees: Some private and federal student loans have an origination or disbursement fee, a percentage of your loan amount that you have to pay when taking out the loan. All five of the top lenders got a perfect grade because they charged no such fees.
• Ease of online application: We tried out the application process with each of the lenders and assigned grades based on the clarity of the website and simplicity of the application process.
• Maximum repayment term: All five of our top picks got top marks for offering a 15-year loan term option. A longer term can result in lower monthly payments, but it could also increase your overall cost of borrowing. Some of the lenders also offered shorter terms, which can increase your monthly payment but also lower your interest rate. No matter the term, you can always pay off student loans early without penalty.
• Ability to release co-signer: Some lenders let you release a co-signer if you meet their credit and income requirements and make a consecutive series of on-time full interest and principal payments. The lenders that had the shortest time-period requirement (12 months) got the highest score, while lenders that didn’t allow for co-signer release got the lowest.
• Maximum deferment: Private student lenders offer different types of repayments plans, such as full interest and principal payment, interest-only payments, $25-per-month payments and an option to fully defer your payments until after you graduate. The most points went to the lenders that offered full-deferment options.
• Extra credit, or any perks that set the lender apart from the pack: We gave bonus points to lenders that offered borrowers extra benefits, such as a principal reduction upon graduation.

After assigning a grade for each component, we ranked the best student loan companies from top to bottom based on their average score, plus bonus points.

SunTrust Bank

SunTrust’s Custom Choice Loan® has one of the lowest possible APR on variable- and fixed-rate private student loans. SunTrust also offers up to a 0.50 percent interest rate discount if you sign up for autopay from a SunTrust account, or 0.25 percent with autopay from a non-SunTrust account.

SunTrust also offers a money-saving extra perk. If you earn a bachelor’s degree or higher, once in the lifetime of a loan you can apply for a 1 percent principal reduction from your loan servicer. The reduction is based on the net disbursed loan amount.

With either fixed- or variable-rate loans, you can choose from a seven-, 10- or 15-year term and fully defer your payments until after graduation.

However, one potential drawback is that you have to make 36 to 48 consecutive full payments to release a co-signer. The other top lenders that allow co-signer release only require 12 to 24 consecutive payments.

• Variable APR range. 2.517% – 10.050% APR
• Fixed APR range. 3.819% – 11.050% APR
• Interest rate reduction with autopay. 0.25 percent with autopay and another 0.25 percent if you make automatic payments from a SunTrust Bank account
• Origination or application fees. No
• Ease of online application. Good
• Repayment terms. Seven, 10 or 15 years
• Co-signer release. Yes, after 36 or 48 consecutive full payments.
• Maximum deferment. You can fully defer your payments while you’re at school and during a six-month grace period after graduating.
• Aggregate loan limit. $150,000

Bonus. You can request a 1 percent principal (based on the disbursed loan amount) reduction after you graduate.

Discover

Discover scores well with its low APR ranges, Auto Debit reward, lack of fees, full deferment option and maximum loan term. However, Discover only offers a 15-year term for their undergraduate loans, while some other lenders offer a range of terms including 15 years.

Although you could pay your loans back more quickly, you may lose out because shorter-term loans tend to have lower interest rates than longer-term loans.

A potentially major drawback with Discover is the lack of a co-signer release option. You still might be able to release a co-signer by refinancing your loans later, but if interest rates rise, you could get stuck with a more expensive loan.

• Variable APR range. 1.12% – 10.87%* APR
• Fixed APR range. 4.24% – 12.39%* APR
• Interest rate reduction with automatic payments. 0.25% interest rate reduction while enrolled in automatic payments.
• Origination or application fees. No
• Ease of online application. Good
• Repayment term. 15 years, undergraduate
• Co-signer release. No
• Maximum deferment. You can fully defer your payments while at school and during a six month grace period after graduating for undergraduate loans, and nine months after graduating for graduate loans.
• Aggregate loan limit. School-certified cost of attendance

Bonus. Students who get at least a 3.0 GPA (or equivalent) qualify for a one-time cash reward on each new Discover undergraduate and graduate student loan. The reward redemption period is limited. Please visit DiscoverStudentLoans.com/Reward for any applicable reward terms and conditions.”

Wells Fargo

You may be most familiar with Wells Fargo because of its mortgage and banking products, but it also offers private student loans. If you or your co-signer already has a Wells Fargo checking account or student loan, you can get a 0.25 percent interest rate reduction on a new student loan.

Or, you could get a 0.50 percent interest rate reduction if you or a co-signer have a Portfolio by Wells Fargo account.

You’ll get the discount for the life of the loan, even if you close that account, and you can get an additional 0.25 percent interest rate discount by signing up for autopay after you take out the loan.

Like Discover, Wells Fargo only offers a 15-year term, which could force you into a longer repayment period or higher-interest-rate loan. Wells Fargo also has a checkered past when it comes to student loans.

In 2016, the Consumer Financial Protection Bureau took action against Wells Fargo and forced it to pay in excess of $4 million in fines and student aid relief for illegal and deceptive student loan practices.

Among the CFPB’s allegations, Wells Fargo was accused of failing to provide important payment information to consumers, charging consumers illegal fees and not updating inaccurate credit report information.

• Variable APR range. 2.68%– 9.46% APR
• Fixed APR range. 4.53% – 10.72% APR
• Interest rate reduction with autopay. 0.25 percent with autopay. You can also get a 0.25-0.50 percent interest rate reduction if you or your co-signer has an eligible Wells Fargo account.
• Origination or application fees. No
• Ease of online application. Good
• Repayment term. 15 years
• Co-signer release. Yes, after 24 consecutive full payments.
• Maximum deferment. You can fully defer your payments while at school and during a six-month grace period after graduating.
• Aggregate loan limit. $120,000

Bonus. Not applicable

College Ave Student Loans

A relative newcomer, College Ave was founded in 2014 and focuses solely on student loans and student loan refinancing.

As you may expect of a company that was born online, it gets top marks for an easy-to-use online application. College Ave also tied the other top lenders for the most points with its lack of fees and  15-year loan term.

When it comes to loan terms and repayment options, College Ave stacks up well. You can choose from an eight-, 10-, 12- or 15-year term, and between full deferment, $25 monthly payments or interest-only payments while you’re in school.

College Ave requires 24 consecutive full payments to release a co-signer, but you have to read the fine print to get the full picture. In addition to the payments, you have to wait until more than half of your scheduled repayment period elapses before you can release a co-signer.

• Variable APR range. 1.24% – 11.98% APR
• Fixed APR range. 4.39% – 12.99% APR
• Interest rate reduction with autopay. 0.25 percent with autopay
• Origination or application fees. No
• Ease of online application. Very good
• Repayment terms. Eight, 10, 12 or 15 years
• Co-signer release. Yes, after 24 consecutive full payments.
• Maximum deferment. You can fully defer your payments while at school and during a six-month grace period after graduating.
• Aggregate loan limit. School-certified cost of attendance

Bonus. Not applicable

Sallie Mae

Sallie Mae could be one of the most recognizable names in the student loan space, but brand recognition alone doesn’t mean it necessarily has the best private loan offerings out there.

It is still a strong option for private student loan borrowers, rounding out our Top 5, but you may find better terms and loan offerings with the other lenders on our list.

Its undergraduate Smart Option Student Loan® offering has the second-lowest starting APRs for variable- and fixed-rate APR ranges (behind SunTrust) on our list.

The Smart Option Student Loan® also stands out with the lowest number of consecutive full payments to release a co-signer, just 12, although as with all the lenders you’ll also need to meet the credit requirements to take on the loan by yourself.

Read Also: 10 Tax Breaks for Students to Lower Tuition Expenses

Sallie Mae also got good or top marks for fees, an autopay discount and a full deferment option. However, it doesn’t offer discount options as large or as numerous as you’re apt to find with some other lenders.

Borrowers will receive other perks, though. You can get free access to 120 minutes of live online tutoring through Chegg Tutors, four months free of Chegg Study, or a combination of the two study aids. You, and your co-signer if you have one, will also get a free quarterly snapshot of your FICO credit score.

• Variable APR range. 1.25% – 9.44% APR**
• Fixed APR range. 4.74% – 11.85% APR**
• Interest rate reduction with autopay. 0.25 percent with autopay
• Origination or application fees. No
• Ease of online application. Good
• Repayment term. Five to 15 years
• Co-signer release. Yes, after 12 consecutive full payments.
• Maximum deferment. You can fully defer your payments while at school and during a six-month grace period after graduating.
• Aggregate loan limit. School-certified cost of attendance

Bonus. Not applicable

Final Words

To avoid student loan scams, stay away from companies that approach you or that show up in search engine ads. Even if you get a letter or phone call from someone who appears to know the details of your student loan, such as how much you owe, it could be a scam.

Companies can purchase information about borrowers’ obligations and use that information in their marketing efforts.

Also, steer clear of any company that pressures you to act quickly. They’re trying to get your money before you have enough time to step back from the situation and think clearly about whether working with them is a good idea. Ignore their high-pressure tactics and firmly tell them, no thanks.