Avoiding Student Loan Scams and Pitfalls

Don't get taken in by scammers out to profit from borrowers who don't know how the student loan system works.
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Last Reviewed: Thu, Sep 2, 2021

Some companies or individuals may use deceptive or flat-out underhanded methods to try to get money out of student loan borrowers. Here are some things to watch out for:

Deceptive names, logos, or advertising. Some loan companies use material designed to fool you into thinking their program is part of the federal government's student loan program. Keep in mind that the Department of Education does not advertise, send out mailers, or otherwise try to encourage students to borrow money. If you receive a solicitation that looks like it's from the federal government, a private company is trying to mislead you.

Advance fee scams. There are con artists out there trying to charge borrowers up-front fees for completing federal loan applications. Heed this warning

from FinAid:

Under no circumstances pay a fee in advance to get a federal education loan or to consolidate your federal education loans. There are no fees to consolidate your loans. While other federal education loans, such as the Stafford and PLUS loans, may charge some fees, the fees are always deducted from the disbursement check. There is never an up-front fee.

If someone asks you to pay a fee at the time you apply for a federal student loan, say no way. To learn more about advance fee loan scams, see the Federal Trade Commision's Consumer Information website.

Loan elimination or bankruptcy scams. Don't believe anyone who claims they can get rid of your student loans for a fee. There are strict rules about canceling student loans or having them forgiven. If you qualify for loan forgiveness or cancellation, you won't have to pay a fee to make it happen. (For more information, see Can I Cancel My Student Loans? and Student Loan Forgiveness Programs.)

Bankruptcy discharges are difficult to obtain and exceedingly rare. If you hire anyone to help you explore the possibility of canceling your loans in bankruptcy, it should be an experienced lawyer. (To learn more, see Can I Discharge My Student Loans in Bankruptcy?)

Scare tactics. Turn away student loan marketers who try to scare you with claims that your interest rates will skyrocket if you don't consolidate your loans right away, or other high-pressure gambits. See Consolidation Loans: Pros and Cons, for tips on consolidating your loans with a responsible lender -- and the pitfalls to avoid when consolidating. Don't rush the process.

Gifts or prizes. Private lenders may encourage you to borrow money by offering you a gift card, sweepstakes prize, or credit card. There's nothing illegal about this, but don't let bells and whistles distract you from the goal of getting the best possible loan terms from a private lender.

Unidentified callers asking for sensitive personal information. Beware of scammers claiming to be from a lender or from the federal government who request information such as your Social Security number. Release sensitive information only if you know you're dealing directly with the government or a lender with whom you've already made contact. 

Vanishing perks. A variety of helpful discounts may accompany your private loan, including lower interest rates for electronic payments, a minimum loan balance, or keeping current on your payments. Before you sign a loan contract, read the fine print to be sure you understand when you qualify for discounts -- and when you may lose them.

Bad behavior. It may not rise to the level of a scam, but a 2013 report released by the Consumer Financial Protection Bureau (CFPB) detailed extensive problems with the way private loan servicers process payments. This can result in everything from lost payments to unfair fees, from inaccurate account information to problems paying off loans early. For more details, see Repaying Private Student Loans: Watch Out for These Pitfalls on Nolo.com. If you're already struggling with your loan servicer, see How to Get Help With Student Loan Problems.

How to Report a Student Loan Scam or Fraud

If you've been approached by a student loan scammer, you can file a report with the U.S. Department of Education's Office of the Inspector General (OIG).