search facebook-square linkedin-square twitter envelope android-arrow-forward

Scammers can sense the confusion and desperation of many student loan borrowers looking for loan forgiveness. They take this opportunity to make a quick buck by using far-fetched schemes to defraud borrowers, which makes it incredibly difficult to distinguish the many legitimate student loan forgiveness companies that are out there.

Here’s a quick guide to understanding and recognizing these scams so you can protect yourself from becoming a victim.

Student loan forgiveness scams

Reminiscent of foreclosure rescue schemes that sprang up in the wake of the 2008 housing bust, hundreds of student loan debt relief companies market themselves today as expert negotiators, but many take advantage of the borrowers they promised to help.

While not all companies that offer student loan debt relief services are scams, some have run afoul of regulators for charging borrowers for services that are provided for free by the Department of Education and its approved loan servicers, such as federal loan consolidation or enrollment in income-driven repayment programs.

A recent survey by NerdWallet and Student Debt Crisis sheds some light on the prevalence of these companies and the methods they employ. About 85 percent of those surveyed had student loan debt, and nearly half (44 percent) said they’d been contacted by a student loan debt relief company. The survey identified roughly 200 companies offering student loans debt relief services, and 9 percent of the 6,363 survey respondents said they’d paid for those services, shelling out $613 on average.

Want to save on your student debt without the scams?

Credible makes it easy to see if refinancing is right for you:

  • Compare actual rates, not ballpark estimates – Unlock real rates from up to 11 lenders
  • No fees – None of our lenders charge origination fees or prepayment penalties
  • No credit impact – Checking rates has no impact on your credit score
  • Data privacy – We don’t sell your information, so you won’t get calls or emails from multiple lenders

Compare Rates Now

There are four signs to look for that will help you spot student loan forgiveness scams that charge unnecessary fees to serve as middlemen with the Department of Education:

  • Upfront fees for free services: Some student loan debt relief companies charge upfront fees to consolidate loans as high as $999, or 1 percent of the loan balance. They may also ding clients for “enrollment” or “subscription” fees of up to $600, and monthly “maintenance” fees of up to $50 per month.
  • Official sounding names or logos: Watch out for companies that use official-looking logos or claim to be affiliated with the Department of Education, or incorporate words like “federal” or “national” in their name.
  • Requests for sensitive information: Think twice before signing a “third party authorization” or a “power of attorney,” and don’t provide sensitive information like your Federal Student Aid PIN until you have verified that a company is legit.
  • Promises of immediate debt relief: While some student loan debt relief companies make it sound like you could have your loans forgiven or debt cancelled immediately, this is highly unlikely. Government repayment programs that you can enroll in for free can lead to loan forgiveness, but typically you won’t qualify until you’ve made payments for 10, 20 or 25 years.

In reporting the results of its survey, NerdWallet noted that many borrowers are confused about the difference between federal loan consolidation and student loan refinancing. While a federal direct consolidation loan can help borrowers manage their monthly payments — they are often the first step to enrolling in an income-driven repayment plan — they can only be used to combine your federal loans, and they don’t lower your interest rate.

The only way to lower the interest rate on your federal or private student loans is to refinance them with a private lender. While refinancing is not for everyone — you’ll lose borrower benefits that come with federal loans like loan forgiveness and access to income-driven repayment programs — thousands of borrowers have decided that the savings they can achieve through refinancing outweigh those benefits.

Scholarship scams

Scammers will also dangle academic scholarships as bait. These scholarships often require that the applicant pay a fee. According to, there’s often no scholarship to be had. In other cases, scammers will give out a small percentage of the money they collect to give their scheme the illusion of legitimacy.

Also unsettling about this scam is that these predatory companies not only trick victims out of their money, they also obtain sensitive personal information.

One way to recognize scholarship scams is to keep in mind that it’s rare for legitimate organizations to request money upfront when submitting scholarship applications. If you get a call or offer like this, be wary of its authenticity and the intentions of the person calling.

The federal student tax scheme

In the same way that scammers will pose as IRS agents and attempt to collect fake tax bills, fraudsters will cold-call or email student loan borrowers and try to convince them they owe a federal student tax.

These calls can include intimidation tactics like threats of arrest or withholding a degree in order to get the target to cough up the money, the Better Business Bureau’s Sandra Guile reports.

While the IRS does consider student loan debt that’s forgiven after 20 or 25 years of payments in an income-driven repayment program to be taxable income, few, in any borrowers have been making payments for long enough yet to qualify. In reality, there’s no such thing as a “federal student tax” — scammers made that term up to part you from your money.

A variation on the federal student tax scheme involves callers claiming to work for the FBI seeking personal information or money to repay the government for student loans, delinquent taxes, or parking tickets. Sometimes these scammers even “spoof” the caller ID of the victim’s phone to make it seem like the call is coming from the FBI.

The FBI would like to remind you that it’s not a collection agency — the bureau never calls private citizens asking for money. It just doesn’t happen.

So, no matter how official it sounds or how intimidating the threats are, if you are called by anyone claiming to be with the FBI asking for money or mentioning a federal student tax, be wary of their intentions. If you do happen to receive a call from a scammer impersonating an FBI agent, the bureau encourages you to file a complaint through the FBI’s internet crime complaint center at

Fake government grant schemes

While the “federal student tax” scam attempts to exploit borrowers’ fear, there’s another scheme that relies on desperation and hope. The fake government grant scheme often comes in the form of a phone call or email. The target is told they’ve been selected to receive a grant that can be put toward their education costs, and won’t have to be paid back.

As you can imagine, this can sound like a sweet deal to a borrower desperate for any type of relief. The catch is that, in order to claim the grant they must pay a fee upfront — a “processing fee” or some other type of charge. Eager to take advantage of this opportunity, some borrowers pay the fee, unwittingly becoming victims of the false government grant scheme.

Detecting this scam isn’t as black and white as spotting the federal student tax. That’s because unlike the nonexistent federal student tax, there are plenty of real government grants for students.

But real government grants won’t be encumbered by the upfront fees that these scammers are after. Not only should upfront fees raise a red flag, but keep in mind that you will usually only be contacted by an institution about a grant if you’ve applied for one. If you get a call from out of the blue about a grant you didn’t apply for, alarm bells should ring.

Looking for a way to ease your student loan debt without the scams?

Credible is a multi-lender marketplace that allows borrowers to get personalized rates and compare loans from vetted lenders, without affecting their credit scores. Credible can connect you with multiple vetted lenders so that you can compare personal loan offers and choose the best option for you.