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More than 42 million Americans owe upwards of $1.2 trillion in student loan debt, and at least 7 million have fallen behind on their payments or defaulted on their obligations altogether.
To take advantage of the situation, a cottage industry of student loan debt relief companies has sprung up promising to help desperate borrowers — in many cases charging for services that are provided for free by the Department of Education and its approved loan servicers.
To help make monthly payments more manageable, the Department of Education offers a number of income-driven repayment plans that tie loan payments to income.
Some loans — Perkins Loans, and older Federal Family Education Loans (FFEL), for example — may need to be consolidated in order to qualify for an income-driven repayment plan.
Consolidating government student loans is free. Although it won’t reduce your interest rate, it can lower your monthly payments by stretching them out to as long as 20 or 25 years.
These student loan debt relief companies shouldn’t be confused with private lenders, who can help borrowers with good credit refinance their federal student loans at lower interest rates. Although refinancing isn’t for everyone, it’s worth looking into, particularly if you have PLUS loans that carry higher interest rates (see our step by step guide on how to refinance student loans).
Learn more: Defaulted Student Loans: Can You Refinance?
Upfront fees for free services
The Department of Education has a number of tools to help borrowers who are having trouble repaying their federal student loans avoid default, including deferment and forbearance. Once you’ve defaulted, loan rehabilitation may be an option. In some situations where there are extenuating circumstances, you can have your debt forgiven, canceled, or discharged.
The important thing to remember is that these are borrower benefits that come with federal student loans. You should never pay money upfront to access any of these programs, including income-driven repayment plans, or to have your federal loans consolidated.
According to the Department of Education, some student loan debt relief companies charge upfront consolidation fees as high as $999, or 1 percent of the loan balance. They may also hit borrowers with “enrollment” or “subscription” fees of up to $600, and monthly “maintenance” fees of up to $50 per month.
If you think you’ve been scammed, you can call the Consumer Financial Protection Bureau (CFPB) at 1–855–411–2372.
If you do decide that consolidation is the right option for you, there are four approved loan servicers who can consolidate your loans for you:
Below are four ways to spot student loan debt relief companies that charge unnecessary fees to serve as middlemen with the Department of Education.
Official sounding names or logos
Beware of private companies that use words like “federal” or “national” in their name. Many companies that run scams use official-looking logos or claim to be affiliated with the Department of Education, even if they aren’t. Make sure you do your research — look up companies on the Better Business Bureau’s website to make sure they are legitimate.
Requests for sensitive information
Never provide any company with sensitive information like your Federal Student Aid PIN before verifying that they are legitimate.
The Consumer Financial Protection Bureau advises that you be wary of demands that you sign a “third party authorization” or a “power of attorney,” which gives debt relief companies permission to talk directly to your student loan servicer and make decisions on your behalf. If student debt relief companies offer to handle your monthly payments and ask you to pay them directly, think twice. Such arrangements can lead to unhappy surprises.
Promises of immediate debt relief
Some companies try to take advantage of borrowers’ desperate situations, claiming that they can provide immediate loan forgiveness or debt cancellation. In reality, student debt relief companies are charging you to access government programs you can enroll in for free. Although these programs can sometimes lead to loan forgiveness, you typically won’t be eligible until you’ve made payments for many years.
It can be confusing trying to figure out how you can legitimately save money, or what options you qualify for — especially if you’ve got regular student loan payments haunting you. And we know that often, the quickest solutions seem the most tempting. But this is exactly what deceptive companies are hoping for.
Arm yourself with the right information. Do your research and talk to trusted professionals, and you won’t have to fear losing money to debt relief companies that you could be using to pay off your loans. Basically, if it sounds too good to be true, it probably is.
Ariha Setalvad <email@example.com> is a Credible staff writer. Follow us on Twitter at @Credible.