Avoid Falling Victim to Student Loan Scams

Young college graduates, burdened with student loan debt, are easy prey for scam artists. 

Young Americans entering the work force quickly learn that starting pay for college grads is less than they expected. Many have little or no experience balancing their income with the expenses of living on their own and paying monthly bills. For some, student loan debt can be a huge obstacle to achieving the lifestyle they desire. That frustration and the need to find a way out of debt makes them vulnerable. Scam artists search out and target the vulnerable. If you or your kids have big student loans, you need to be able to distinguish real help from a scam that will sink you even deeper in debt.

Three Basic Types of Common Scams

Scammers reach their target audience in several ways.  Some use the telephone.  It may be a robocall with an automated voice on the other end, or it may be a live person calling to offer phony help.  Scammers also use text messages, emails, and ads on social media to entice you into using their “services.”  Others may advertise on the internet or in smaller publications.  The key to defending yourself is to view any of these contacts with skepticism. 

Advanced Fee Scam: These con artists offer to help you reduce your monthly loan payments, but their help comes at a cost.  They may require a significant upfront fee to do the work, or they may ask for monthly payments.  It is a violation of federal law to charge an advance fee for this type of service.  They may call themselves a student loan relief company, student loan experts, or some other name.  They offer to consolidate your loans and guarantee you smaller monthly payments.  Sometimes, the fake company will take your money and run.  They may even file paperwork on your behalf.  Either way, you are not getting a bargain.

The Facts:  The only real form of federal student loan consolidation is done with the federal government and there are no fees involved.  Student loan consolidations do not lower your interest rate or your monthly payments.   The government averages out the interest rates on all your federal student loans and comes up with a monthly figure.  You have the option of requesting a Direct Consolidation Loan with the federal government.  The process includes a loan calculator that tells you if you will save money with a consolidation. Private loans may also be consolidated, but only if you work with your lender.

IRS Student Loan Tax Scam:  In this scam, you are usually contacted by a phone call.  The caller pretends to be from the IRS and informs you that you owe the government a student loan tax that has not been paid.  This one is a variation on the traditional IRS scam where the caller claims you owe back taxes.  The scammer threatens to have you arrested if you do not immediately pay by credit card or wire transfer.  Sometimes, the scammers will tell you the IRS is preparing to sue you for nonpayment of taxes.  THE IRS NEVER CONTACTS TAXPAYERS BY PHONE TO COLLECT MONEY.  All such phone calls are scams.  Some scammers go so far as to spoof actual IRS phone numbers to lend credence to the con.

The Facts:  The IRS always notifies taxpayers of tax issues by mail.  It never demands immediate payment by credit card, wire transfer or other specific means.  The IRS never requires you to pay immediately or be arrested or sued.  The agency will never ask you to email them personal information.  It has your social security number; it does not need you to supply it.

Student Loan Forgiveness Offers:  A scammer will contact you or advertise on social media.  They may tell you their company is affiliated with the U.S. Department of Education, and they are authorized to enroll you in a student loan forgiveness program.    Another variation of the scam offers to have a law firm negotiate the amount of your loan and guarantees they can settle for far less than you currently owe. 

These fake companies and law firms offer you what looks like a screaming deal, but at a price.  Some want a large up-front fee.  Others have you make your loan payments to the law firm instead of the lender.  They claim they are keeping your money in trust while negotiating the amount of your loan.  Of course, there is no negotiation, and your money is gone. 

The Facts: The only genuine student loan forgiveness offers are those made by the government.   The scam mimics the Public Service Loan Forgiveness Program which offers to reduce or eliminate federal student loans for public servants.  You must work full-time for the government or a 501(c) (3) nonprofit and make your full monthly payments for at least ten years to qualify.  

Red Flags that the Offer is a Scam.

There are a number of warning markers you need to watch out for.  If you see or hear any of these signs, be on alert.  You are dealing with a con artist planning to bilk you of your money.

  • The company wants an upfront payment to do the work. It may be called a retainer, a loan consolidation fee, or a deposit. 
  • The company wants detailed personal information. The representative wants you to give date of birth, social security number, credit card and bank information over the phone or in an email application.  You may be asked for your FSA ID.  No legitimate loan servicing agency will ever ask for your FSA ID and password.  Those are used strictly for signing official documents and should never be given to anyone.
  • The company advertises speedy results. It may claim a high success rate, but there is no way to verify the claim.
  • The company asks you to sign an authorization form or a power of attorney that allows it to act on your behalf. Scammers want the authority to change your account and contact information.  They may also change your passwords.  Why? They can use your information to steal your identity.  They also want to conceal that you are racking up delinquencies and penalties on your loan.  Meanwhile, you believe your payments are suspended during negotiation or that the scammer is making the monthly payments on your behalf.
  • The representative uses high pressure tactics. “Act now!  This is a limited time offer, and you can’t afford to miss out.”
  • You may find misspelled words or grammatical errors in communications. Some of these phony agencies are based in foreign countries and they may not have total command of the English language.
  • They promise loan forgiveness and/or cancellation. That is not something they can deliver.
  • The company claims it is associated with the Department of Education. While the U.S. Department of Education contracts with loan service companies who handle the billing and record keeping on your federal loan, it does not work with “student loan relief” companies.

If you spot any of these danger signs, back away.  Immediately, report the company to the Federal Trade Commission (FTC), the Consumer Federal Protection Bureau (CFPB), and your state attorney general’s office.  Consumer complaints are the best way for government agencies to identify this type of illegal activity.

How to Get Legitimate Help with Your Loan.

There is a lot of truth in the old adage: “If it sounds too good to be true, it probably is.”  Do your research before committing to anyone offering help with student loans.  As part of your research, check out the FTC’s list of people and companies banned from offering debt relief.  It is the first resource listed at the end of this article.  There are many student debt relief companies in the marketplace.  They offer help with your student loans for a fee.  While some of these companies are quasi legitimate, the services they offer are things you can do for yourself by expending a little time and energy.  The big problem with enforcement is that these shady companies operate under many different names and phone numbers.  If the government shuts one down, it pops up somewhere else with a new name and website.

For genuine assistance, you need to know whether you have a federal loan or a private loan.  Federal student loans are offered by the federal government.  They have a fixed interest rate and payments are generally deferred until you graduate or change your enrollment status to fewer than the required hours. 

Private loans are offered by private lenders or banks.  Generally, you are required to make payments while you are still in school.  Interest rates on private loans are usually higher than on those offered by the government, which are fixed by statute. The majority of students apply for federal loans, and the resources described here apply mainly to government loans.

For factual information, go to the United States Department of Education’s website and look at their student aid pages.  The site offers a list of resources to get information on student loans and student aid.  Never pay for help filling out the FAFSA form (free application for federal student aid form).  You can find the form on the web at  Free help is available for filling out the form in the site’s online help section.  You can also get help at your college’s financial aid office or the Federal Student Aid Information Center.

You can also find free help in managing your current student loans.  Go to to learn how to apply for an income based repayment plan, loan consolidation options, and real government forgiveness programs.   You can also find expert help in managing your student loans through a student loan counselor.  Make certain you use one who is certified by the National Foundation for Credit Counseling.  The second site listed under resources offers a list of legitimate companies servicing federal loans as well as a list of collection agencies that will work with you if you are struggling with payments. 

What to Do if You Have Been Victimized by a Student Loan Scam.

Report the scam to the agencies discussed above.  Log in and immediately change your FSA ID.  Keep the new ID private and do not share it with anyone.  If you have given the scammer an authorization or power of attorney, contact your loan servicing agency and revoke it.  Notify your bank and any credit card companies you use.  You may want to change your bank account information and have new credit cards issued.  Check your credit report on a regular basis to make sure the scammers did not steal your identity and incur debt in your name. 

Be vigilant.  Check your bank accounts and credit card statements carefully every month.  Always approach unsolicited offers or ads with a healthy dose of skepticism.


This website has been prepared for general information purposes only. The information on this website is not legal advice. Legal advice is dependent upon the specific circumstances of each situation. Also, the law may vary from state-to-state or county-to-county, so that some information in this website may not be correct for your situation. Finally, the information contained on this website is not guaranteed to be up to date. Therefore, the information contained in this website cannot replace the advice of competent legal counsel licensed in your jurisdiction.

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