Advice from the Better Business Bureau: Beware of debt consolidation offers
With the impact of COVID-19 on daily life greatly reduced, student borrowers whose repayments have been suspended due to the pandemic may be considering their options for resuming payments on this life-changing debt.
This may lead some borrowers to look into debt consolidation, but it’s important to research these options carefully and not give in to the temptation to look for a quick fix that could turn out to be a scam.
After a recent action by the Biden administration, federal student loan repayments remain suspended without interest until Dec. 31. receive up to $20,000 in pardons. Consumers should beware of scammers who take advantage of the news by offering bogus ways to apply for loan forgiveness.
Better Business Bureau Scam Tracker received over 500 reports of debt relief and credit repair scams in North America in 2021. These scams cost consumers a reported total of over $283,000, the median consumer losing $600. Most often, these reported scams involved payment by bank account debit.
Upfront fees, including fees to enter a repayment plan, are a common thread among debt relief scams. These upfront charges are illegal. Loan repayment assistance – including loan deferrals, forbearance, repayment, and forgiveness or release programs – is available directly from the Department of Education and Loan Services, and application for these programs is always free.
Some scam companies ask consumers to sign a power of attorney for financial decisions, use it to suspend the consumer’s loans – a way to temporarily stop or reduce payments, during which the loans continue to earn interest – and require the consumer to make payments directly to them rather than to the loan officer. In reality, the company keeps the payments for itself and the forbearance eventually expires without any repayment progress.
Borrowers seeking student loan relief should consider the following tips:
• Do your research on the company and the options available to you. BBB business profiles on debt consolidation and other businesses are available at BBB.org or by calling 888-996-3887. These include customer complaints and how they were handled, customer reviews, and an A+ to F grade.
• Do not pay upfront fees to debt repayment companies. If a rescue company asks for money before helping you, report it to BBB.
• Think twice before signing a power of attorney or giving a company your bank account information or your federal student aid website login information. These actions allow a company to make potentially devastating financial decisions for you.
• Don’t agree to a long-term abstention or adjournment plan without doing your homework. These should only be seen as temporary solutions.
• Don’t be fooled by promises of quick relief. The loan relief and forgiveness options available through the Department of Education still require years of payments, and these loans cannot be canceled by bankruptcy.