Some Student Loan Debt Relief Companies Want to Steal Your Money, Not Help You Save Money

Debt relief companies sell services you could perform for free, and some outright steal your money

Whether you’re freshly graduated or juggling multiple balances, the promise of quick student-loan forgiveness can be tempting. But there’s no magic bullet: many debt-relief outfits charge hefty upfront fees for paperwork you can file yourself at no cost, and some simply vanish with your money. Here’s how to spot the scams and find legitimate help for federal and private loans.

No “Easy” Debt Forgiveness

Scammers target borrowers desperate for relief. They may:

• Demand a “modification fee” upfront to lower your interest rate or change your repayment terms.
• Claim special ties to the Department of Education that let them erase debt.
• Ask you to send payments directly to them instead of your servicer, then disappear.
• Have you sign a “power of attorney” to negotiate on your behalf, then do nothing.

Legitimate federal programs are free; never pay anyone before your debt-relief plan is in place.

Red Flags of a Scam

• Upfront fees before any service is delivered.
• Guarantees of debt forgiveness or dramatic rate cuts.
• Unreasonable promises to consolidate federal loans at below-market rates.
• Requests for your Federal Student Aid PIN or Social Security number via unsecured channels.
• Claims of affiliation with the Department of Education without disclosure.

Genuine Federal Relief Options

Federal loans offer multiple income-driven repayment plans that cap payments at 10–20% of discretionary income, plus options for deferment, forbearance or even forgiveness after 20–25 years of qualifying payments. For public-service workers, the Public Service Loan Forgiveness program can wipe out remaining balances after 120 qualified payments under a qualifying plan and employer.

Learn more on studentaid.ed.gov and the general forgiveness page at studentaid.ed.gov.

Options for Private Loans

Private lenders don’t participate in federal plans, but many allow hardship forbearance or refinancing at lower rates. Contact your lender directly to discuss:

• Refinancing to a longer term or lower rate.
• Temporary payment reductions or skip-a-payment programs.
• Graduated or income-sensitive repayment options.

DIY: How to Protect Yourself

• Verify any company on bbb.org and search reviews on consumer forums.
• Never sign power-of-attorney documents without reading every line.
• File federal repayment or forgiveness applications yourself at studentaid.gov.
• Report scams to the Federal Trade Commission at ftc.gov.

Key Takeaways

• There’s no cost to enroll in federal repayment or forgiveness plans.
• Upfront fees, guaranteed forgiveness or direct-pay scams are always fraudulent.
• Use official government sites, studentaid.gov—for all federal applications.
• For private loans, work directly with your lender on refinancing or hardship plans.
• Report any suspicious debt-relief company to the FTC and your state attorney general.

Don’t let fraudsters prey on your need for relief. By sticking to free federal programs, dealing directly with your servicer or lender, and recognizing the warning signs of scams, you can tackle your student debt without risking your savings.