January 29, 2015

Avoid Companies Offering Student Loan Debt Relief for a Fee

This release was issued jointly with the Office of the Attorney General and the Department of Consumer Protection.

The Department of Consumer Protection, the Department of Banking, and the Office of the Attorney General are warning residents with student loan debt to avoid companies that promise to provide student loan debt relief, but for a fee. Student loan debt is an increasing financial hardship for Connecticut residents.  Some unscrupulous companies take advantage of borrowers who are trying to manage or lessen their debt, often charging high up-front fees and not offering any services beyond what borrowers can get at no cost by contacting their loan servicers or the U.S. Department of Education.

Some of the warning signs that a student loan debt relief companies may be trying to scam borrowers include:

• High up-front fees;
• Recurring monthly charges;
• Promises of immediate loan forgiveness or total debt cancellation;
• Requiring borrowers to sign over a power of attorney or "third-party authorization;"
• Asking for borrowers' Federal Student Aid PINs;
• Falsely representing an affiliation with the United States Department of Education;
• Selling a one-size-fits-all solution that might not be appropriate for all borrowers.

“These companies tend to advertise on the internet, through social media or by direct mail solicitations that mimic actual government documents,” Consumer Protection Commissioner Jonathan A. Harris said. “Typically, they promote loan forgiveness, loan consolidation, or refinancing -- the catch is you’re asked to pay upfront, before they take any action on your behalf."

Borrowers should be cautious in responding to advertisements and solicitations received via social media or those that include official government-like direct mail solicitations.

"Borrowers with student loans need not pay someone for assistance that may be available for free by contacting their loan servicers," said Attorney General George Jepsen. "Unfortunately, some debt relief companies prey on borrowers' financial insecurity through false promises, and rather than helping manage their debts end up worsening their financial situations."

Acting Banking Commissioner Bruce Adams said, “It can be overwhelming to have student loan payments to worry about, especially combined with credit card or other types of debt.  If it becomes too difficult to cope with the growing debt, we recommend utilizing credit counselors, or debt adjusters, who are licensed by the Department of Banking to assist consumers with debt management plans.”

The Attorney General and Commissioner encourage borrowers having difficulty repaying their student loans to contact their loan servicer.  Borrowers looking for help can use the following resources:

• The United States Department of Education's Federal Student Aid website-- https://studentaid.ed.gov/repay-loans -- contains a number of links to information about student loan repayment options and how borrowers can identify their student loan servicer.
• The CFPB's student loan repayment site-- http://www.consumerfinance.gov/paying-for-college/repay-student-debt/. This site explains options available to borrowers with federal and non-federal (private) student loans.
• The National Consumer Law Center's Student Loan Borrower Assistance Project website at www.studentloanborrowerassistance.org.