How to Spot and Avoid Student Loan Forgiveness Scams: 10 Warning Signs to Watch For

Scammers Resurface: Exploiting Government Extensions

Many students and borrowers have benefited from government programs like the CARES Act, which provided temporary relief from student loan payments. Unfortunately, scammers are exploiting these programs, offering false promises of forbearance or loan forgiveness in exchange for upfront payments. These scams typically resurface whenever the government extends or changes loan payment deadlines, preying on borrowers who are unsure of the latest policies.

False Promises: Paying for Non-Existent Programs

One of the most common tactics scammers use is offering “exclusive” access to student loan forgiveness programs for a fee. They might reference government programs, like the CARES Act, that sound legitimate, but the truth is simple: all legitimate federal student loan forgiveness programs are free. No one can offer special access or faster processing for a fee.

Federal Programs Are Free: Don’t Pay for Something You Already Have Access To

It’s important to remember that federal student loan programs are free to apply for and manage. If anyone asks for payment upfront, it’s a scam. There is no legitimate way to expedite forgiveness or have loans forgiven without meeting specific qualifying conditions. Knowing this can help you avoid falling victim to fraud.

10 Ways To Identify a Student Loan Forgiveness Scam

Scammers are clever, but there are clear red flags that can help you identify and avoid student loan forgiveness scams. Here are 10 ways to spot them:

1. Cold Calls About Loan Forgiveness

Be wary of unsolicited calls from someone claiming to be from the U.S. Department of Education (ED) or a related company. They may ask for personal information, like your Federal Student Aid (FSA) credentials. Remember, legitimate organizations will not call you unexpectedly to offer loan forgiveness.

2. Urgent, Time-Limited Offers

Scammers use urgency tactics to rush you into signing up without giving you time to research. If someone says an offer is only available for a limited time, it’s likely a scam. Take your time to verify any claims before making decisions about your student loans.

3. Promises of Immediate, Complete Loan Forgiveness

If someone promises you immediate loan forgiveness for a fee, they’re lying. Legitimate forgiveness programs take time and require qualifying payments. No one can offer quick or full forgiveness without you meeting certain conditions over a period of time.

4. Demands for Upfront Payments

Legitimate loan forgiveness programs never require upfront fees. If someone asks you for money to process your application or provide assistance, it’s a scam. Scammers often claim that these payments will go toward your loan balance, but they pocket the money instead.

5. Requests to Share Your FSA Credentials

Your FSA ID and password are personal and should never be shared. Legitimate loan servicers will not ask for this information. If a scammer gets hold of your FSA credentials, they can access your account, change details, and even steal personal information for identity theft.

6. Pressure to Sign a Power of Attorney

Fraudulent companies may ask you to sign a power of attorney, giving them legal authorization to manage your loans. This allows scammers to make unauthorized changes to your account and even access your bank details. Never sign a power of attorney without consulting your loan servicer.

7. The Caller Is Not an ED-Affiliated Company

Scammers often pose as loan servicers, but you can verify whether they’re legitimate. Always check if the caller is from a recognized loan servicer, such as FedLoan Servicing, Navient, Nelnet, or Great Lakes. If they aren’t, it’s a red flag.

8. The Caller Is on FTC’s List of Banned Companies

The Federal Trade Commission (FTC) maintains a list of companies banned from offering debt relief services due to fraudulent practices. Before engaging with any company, check this list to make sure they aren’t flagged for scams.

9. Unsolicited Encouragement to Cut Ties with Your Loan Servicer

Scammers may tell you to stop communicating with your loan servicer and send payments directly to them instead. Never stop communicating with your loan servicer, and never send payments to a third party. Your loan servicer is the only authorized entity to manage your payments.

10. The Offer Doesn’t Make Sense for You

Scammers may offer loan consolidation or forgiveness options that don’t apply to your situation. For example, they may promise to consolidate private loans into federal programs, which isn’t possible. If the offer doesn’t make sense, trust your instincts and do your research.

What to Do If You Fall Prey to a Student Loan Forgiveness Scam

If you realize you’ve fallen for a scam, take action immediately to protect your financial information and stop further damage. Here’s what you should do:

1. Change Your FSA Logins

If you’ve shared your FSA credentials with a scammer, update your login information right away. This prevents scammers from accessing your account and making unauthorized changes.

2. Consult with Your Student Loan Servicer

Contact your loan servicer to revoke any power of attorney or third-party authorization you may have granted to the scammer. This ensures that no one else can make changes to your loan account.

3. Notify Your Bank

If you’ve shared your bank account information with scammers, notify your bank immediately. Cancel any scheduled payments and block future transactions to avoid unauthorized withdrawals.

4. Report Fraud

Report the scam to authorities, including the FTC, Consumer Financial Protection Bureau (CFPB), and the Office of Inspector General (OIG). These agencies can investigate and help prevent others from falling for the same scams.

5. Set Up Credit Monitoring and Freeze Your Credit Report

Scammers often use stolen information to open new lines of credit in your name. Set up credit monitoring and consider freezing your credit report to protect yourself from identity theft.

6. File a Complaint with the BBB

Leave a review with the Better Business Bureau (BBB) to warn others about the scam. This helps others avoid similar situations and holds fraudulent companies accountable.

Conclusion

Student loan forgiveness scams are designed to take advantage of borrowers during stressful times. By being aware of the red flags—such as unsolicited calls, requests for upfront fees, and demands for personal information—you can protect yourself. If you’ve shared any sensitive information or made payments to scammers, contact your loan servicer and financial institutions immediately. Remember, legitimate federal student loan forgiveness programs are free, and no one can expedite the process for a fee. Stay informed, stay vigilant, and stay safe.

If you ever feel uncertain about an offer, reach out to your loan servicer or consult with trusted resources to verify the legitimacy of the claim.