The Most Common Student Loan Scams and How to Avoid Them

While student loans can sometimes feel like a scam, there are also actual student loan forgiveness scams that borrowers have to watch out for. These scams prey on borrowers seeking to reduce their balance or monthly payment, repay their loans faster, stop payments temporarily, or get loans out of delinquent status. Here are common student loan scams you might encounter and how to identify them so you won’t get your money stolen or your credit trashed.

Scam #1: Being Charged a Fee to Fill Out a Form

Do you want to lower your monthly student loan payment to an amount you can afford based on your income? You don't need to pay anyone to complete an income-based repayment plan request for you. Instead, you can fill out the application yourself.

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

Paying for the Help You Need vs. Getting Scammed

It's totally up to you if you choose to pay someone to complete these forms or if you complete them on your own for free, but some companies have taken advantage of borrowers who don’t understand that they have another option. Instead, the companies charge the borrower without explaining the free alternative.

Consider a similar situation regarding a potential tax refund. You may prepare your taxes on your own for free, or you may pay a preparer to help pull your return together. In either case, your financial situation is exactly the same and your tax standing is not impacted by whether you've paid a preparer or not.

Just like navigating student loan paperwork, some people find the tax prep 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, with a professional's help, they might end up owing less in taxes, which more than offsets the professional tax prep fee they paid.

Free Repayment Options and Loan Consolidation

There are legitimate services that exist to help borrowers evaluate their student loan repayment options and apply for the program that best suits their needs. Without guidance, it's entirely possible to make costly mistakes when repaying your student loans.

However, it's important to note that neither the federal government nor the private companies that service (i.e., 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 application for free. Don't fall for offers of private student loan consolidation, as that doesn't exist—though you may be able to refinance several private student loans into one and lower your interest rate.

There are loan fees associated with refinancing your student loan, but don't fall for scams that say you need to pay upfront. These fees will be charged when your loan is finalized and are usually deducted automatically from your loan proceeds.

Paying for help applying for deferment, forbearance, or a different repayment plan is still an option. Just be wary of the fees you are being charged and for what.

Scam #2: Getting Loans Forgiven, Canceled, Discharged, Reduced, or Eliminated for a Fee

Who wouldn’t love to have their student loan debt erased? However, 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 claim that they can help you get your student loans discharged in bankruptcy, don’t believe it. These scammers also can’t get your debt eliminated by representing you in a lawsuit against your student loan company.

These scams typically involve a company or individual telling a borrower that if they pay a large sum, the company will get their loan discharged. In some cases, they may scam you into sending your student loan payments directly to the company instead of to your student loan servicer.

The likely end result is that the company will keep your money and you'll fall behind on your loan. You end up owing even more because of the additional interest and late fees that accrue, and your credit scores may drop when, unbeknownst to you, the loan servicer reports the late payments to the credit bureaus.

Public Service Loan Forgiveness (Not a Scam)

Public Service Loan Forgiveness (PSLF) 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 2007, but it is legitimate. 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

If one of these situations applies to you or a family member, make sure you check out the appropriate form on StudentAid.gov.

Scam #3: False Relief or Forgiveness Programs

The CARES Act, passed in March 2020, provided some relief for federal student loan borrowers. This included 0% interest along with a pause on payments and any related collection activity. The White House made several extensions to these provisions.

The most recent extension was issued on Nov. 22, 2022 and limits the repayment pause until 60 days after the U.S. Department of Education is permitted to implement debt relief efforts. If the program has not yet been implemented or the legislation resolved by June 30, 2023, repayments will resume 60 days later.

Beware of anyone claiming they can get your loan erased as part of the CARES Act or “Biden's loan forgiveness” or a “pandemic grant.” These are several common scams that have been circulating, according to Federal Student Aid, an office of the U.S. Department of Education and the country’s largest provider of student financial aid.

Always be on high alert when someone asks for personal information, such as bank account details or your Social Security number (SSN), in order to gain access to a program.

Scam #4: Requesting Personal Details

The Department of Education will never contact you and ask for personal details like 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. End the interaction immediately. Don’t worry about being rude. 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.
• Do not 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 on 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.

The Bottom Line

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 it's a good idea. Ignore their high-pressure tactics, and check with your student loan servicer as soon as possible to verify their claims.