If you are a millennial like me, sitting on a mountain of student loan debt, chances are you've probably received at least one call or letter a month with offers to suspend your student loan payments as part of the administrative forbearance set by the Coronavirus Aid, Relief, and Economic Security—or CARES—Act. In fact, I recently received a letter stating that I was "prequalified" to have my federal student loans forgiven in exchange for an upfront fee. Of course, not all of the unsolicited letters and calls are scams, but if you're asked to pay a fee to have your student loans canceled, it's a safe bet that those offers are more than likely scam tactics.
Although student loan forgiveness scams have been around for some time, fraudsters claiming to be affiliated with the Department of Education are exploiting the current economic uncertainty by creating confusion around how borrowers can qualify for the administrative forbearance program. Some fake companies will offer to work with borrowers to negotiate a lower repayment plan for free and then request that they send their payments directly to the company rather than to the lender. Furthermore, scammers may ask for personally identifiable information or the borrower's Federal Student Aid (FSA) login credentials in hopes of stealing the borrower's identity or money. In a time when unemployment is high and many are financially vulnerable, people are likely more willing to take risks if it means obtaining some desperately needed financial relief—and fraudsters are well aware of this.
So what should you do if you are contacted by a company offering student loan debt relief? The FSA recommends
you look out for these red flags before you respond:
- They require you to pay upfront or monthly fees.
- They promise immediate and total loan forgiveness or cancellation.
- They ask for your FSA ID username and password.
- They ask you to sign and submit a third-party authorization form or a power of attorney.
- They claim that their offer is limited and encourage you to act immediately.
- Their communications contain spelling and grammatical errors.
The FSA also lists some examples of common phrases that scammers use in their communications:
- "Act immediately to qualify for student loan forgiveness before the program is discontinued."
- "You are now eligible to receive benefits from a recent law that has passed regarding federal student loans, including total forgiveness in some circumstances. Federal student loan programs may change. Please call within 30 days of receiving this notice."
- "Your student loans may qualify for complete discharge. Enrollments are first come, first served."
- "Student alerts: Your student loan is flagged for forgiveness pending verification. Call now!"
Although the latest extension of the administrative forbearance into early next year may be a huge relief for many borrowers, it unfortunately also means that scammers have more time to exploit the situation. I encourage you to read an FSA article that contains other helpful information on how to identify and report a student loan scam.
By Catherine Thaliath, project management expert in the Retail Payments Risk Forum at the Atlanta Fed