Student loan forgiveness scams are on the rise. How to avoid falling victim

Weeks after applying for public service loan forgiveness, a federal program that forgives student loan debt for eligible workers, Kathleen Young got a phone call.

The woman on the other end said she could help Young forgive her student debt. Young, an elementary school teacher in Palo Alto, California, assumed it was the U.S. Department of Education calling about the public service program.

She verified her Social Security number and gave the woman her bank account information to enroll, which she was told would consolidate her loans and forgive them after 60 payments (public service loan forgiveness requires 120 qualified payments.) She was informed she’d see her first payment taken from her bank account in about 10 days.

Later, however, she realized something felt off. She looked up Guidance Alum, the company that called her, and saw that it isn’t associated with the Department of Education and has multiple complaints, including to the Better Business Bureau, about its services.

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“They got all this information from me, and I realized they [the Education Department] would never ask for that information on the phone,” said Young. Guidance Alum did not respond to CNBC’s request for comment.

She was able to close the bank account she gave to the company and sent Guidance Alum a formal cancellation request. Now, she has multiple services monitoring her Social Security number, which she’ll keep for the rest of her life, she said.

A few weeks later, she received an email from FedLoan Servicing, the servicer that is currently running the public service loan forgiveness program for the Department of Education, and was able to enroll there and start making payments towards forgiveness.

Still, she said she feels terrible about possibly falling for something that wasn’t necessarily on the up and up.  

“You know, they say hindsight is 20/20,” she said. “I didn’t think that could ever happen, but the red flags where there.”

Young is not alone. Claims by companies purporting to offer student loan debt forgiveness have ticked up in recent months, potentially spurred by confusion around the pandemic-related pause in payments and interest on federal loans and the push for broad-based forgiveness.

“It’s kind of a prime moment for scams because I think they’re capitalizing on the confusion that surrounds what is happening with student loan policy and potential forgiveness,” said Bridget Haile, head of borrower success at Summer, a company that helps borrowers simplify and save on their student debt.

The coronavirus pandemic has also given scammers more ways to take advantage of people who have been financially hurt over the last year and a half.

“Scammers really prey on the financially vulnerable, and so with the pandemic, many people have been struggling financially and they are looking for financial relief,” said Kristen Evans, chief of the students and young consumers section at the Consumer Financial Protection Bureau. “This just creates the perfect breeding ground for scammers to take advantage of people.”

How to spot and avoid scams

The best way to keep yourself from being scammed is prevention, according to Evans. Because of the current environment, people should have a high degree of skepticism right now, she said.

There are a few key things that people should be on the lookout for if they get a phone call or letter about student loan forgiveness.

People shouldn’t think that just because someone has information about their student loans, such as the total balance, that it means they’re from a legit operation, according to Evans.

“We know that scammers have obtained credit reports illegally and then use that information,” she said.

Look for the name of the program that is being offered to you — some scams purport that they’re part of “Biden loan forgiveness” or “CARES Act loan forgiveness,” two programs that do not exist, said Evans.

If you’ve gotten a suspicious email, check to make sure that it’s being sent from an email address that ends in “.gov.”

Remember that federal programs do not require extra payment for loan forgiveness, so if someone is talking about charging you, it should be an immediate red flag, said Haile.

She also said to be extra careful about anyone asking for your personal information such as a Social Security number, federal student aid ID, credit card or bank account — that information should generally either be logged in on a secure portal or given over the phone to the servicer.

If you think something may be a scam or have any doubts, the best course of action is to contact your servicer directly, both Haile and Evans said.

What to do if you’re a victim

If you’ve fallen victim to a scam and given away important financial information, you need to act immediately to protect yourself from further damage.

If you provided a scammer with credit card or bank account information, call your bank and card company right away to close your accounts or stop payments.

You should also call your student loan servicer, especially if you provided information such as your federal student aid ID, so they can monitor your account.  

You may also want to check your credit report to ensure there’s no suspicious activity, said Evans.

What to do if you’ve been contacted by a scammer

If you’ve gotten a suspicious phone call, voicemail or even a letter that you think is a scam, you don’t necessarily have to take immediate action if you didn’t respond or give out any personal information.

“You absolutely do not have to do anything, if you didn’t give them any information, you should be OK,” said Haile.

You can, however, report it. One option is to file a complaint with the Federal Trade Commission notifying it of the potential scam. Another is to call your state attorney general.

Last, you may also want to check your credit score out of an abundance of caution, said Evans.

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