Con Watch: Student Loan Debt Relief Scams

If you’re applying for student loans or are paying off loan debt, you need to read this article on how to avoid the many student loan scams that are eager to part you and your money.


Weekly Newsletter

The best of The Saturday Evening Post in your inbox!


Steve Weisman is a lawyer, college professor, author, and one of the country’s leading experts in cybersecurity, identity theft, and scams. See Steve’s other Con Watch articles.

More than 42 million Americans have student loans, with a combined outstanding balance of more than $1.4 trillion. So it’s no surprise that scammers are focusing their attention on this group through false promises of debt relief.

Recently, the Federal Trade Commission (FTC) sued Arete Financial Group, alleging that Arete charged illegal upfront fees for their services. The FTC claimed that Arete would change their clients’ Federal Student Aid login ID, password, and contact information with their clients’ loan servicer, which effectively eliminated contact between the borrowers and their loan servicers. This enabled Arete to place the borrower’s loans into temporary deferment status without the borrower’s knowledge. When the borrowers sent their payments to Arete, they were told these payments would be applied toward their loans. However, the FTC alleges that the money was actually kept by Arete.

Another student loan scam involved the charging of upfront fees. For instance, Student Aid Institute, Inc., illegally charged upfront fees in violation of federal law that requires at least one debt to be renegotiated, settled, or reduced before a fee can be charged. In addition, the company misrepresented how much their customers would save, whether they were eligible for loan forgiveness, whether they had been pre-approved for specified programs, and whether fees were required to participate in the federal programs. The company also falsely implied through its advertising that it was affiliated with the Department of Education. (The Department of Education does not associate with private lenders in regard to student loan consolidation.)  Student Aid Institute, Inc. ultimately settled the legal action brought against it by the Consumer Financial Protection Bureau.

Yet another scam involves companies charging significant fees for consolidation services when the truth is that there is no fee for legitimate student loan consolidation. Earlier this fall the FTC obtained a judgment against Los Angeles based Alliance Document Preparation and its affiliated companies for stealing millions of dollars from their unwary victims by misrepresenting that they were affiliated with the Department of Education and charging for consolidation services they never even performed.

Operation Game of Loans

In October of 2017 the Federal Trade Commission, working with the attorneys general of eleven states, launched what it cleverly calls Operation Game of Loans to jointly target various student loan scams.

The FTC’s program has resulted in numerous settlements where funds were returned to the victims. Unfortunately, con artists have developed yet another scam, telling victims that in order to participate in the FTC’s refund program they must pay a fee. Note that there is never a charge for receiving a payment under the FTC’s refund programs. For more information about the various FTC refund programs go to

How to Protect Yourself

  • The old adage still is true. If it sounds too good to be true, it probably is. Many of these student loan debt relief scammers promise quick loan forgiveness, which is unrealistic.
  • Never pay any upfront fees for student loan debt relief assistance. Those fees are illegal and are a sure indication that you are being scammed. Student loan consolidation is always free. Also, no legitimate student loan company asks for an advance fee.
  • Just because the company has a name that sounds like they are affiliated with the government doesn’t make it so. The best way to recognize a phony company is that they claim have a relationship with or are certified by the Department of Education. No company has an affiliation with the DOE.
  • Never share your FSA ID with anyone.
  • Don’t rely on the top results of search engines, which may display advertisements for scam student debt relief companies. The Consumer Financial Protection Bureau has asked Google and other search engines to direct queries to the Department of Education.
  • Visit the U.S. Department of Education’s website, where much helpful debt relief information is available. There you can learn about loan deferments, forbearance, and repayment and loan forgiveness programs. There is never an application fee.
  • If you owe private student loans, contact your loan servicer directly.
  • Look into student loan refinancing rather than consolidating. Refinancing student loans can result in a lower interest rate. This calculator can help you determine whether you will save more by consolidating or refinancing student loans.
  • If your student loan is in default, you may qualify for an income-based repayment plan.

Featured image:

Become a Saturday Evening Post member and enjoy unlimited access. Subscribe now


Your email address will not be published. Required fields are marked *