College”loan aid” businesses continue to operate online while sleepy national and state regulators play catch-up. These are the most insidious of scams that prey upon the more than 40 million Americans struggling with $1.2 trillion in student debt.
These operators keep their doors open since there is no effective regulation over them. The U.S. Dept. of Education (DE) has done nothing to shut them down, even though the section is fully aware of what they’re doing.
The of these fraud merchants is stunningly simple: They offer to get rid of your student loans or even charge you money to fill out free federal paperwork to restructure your debt. You are able to do all this yourself via the DE Web site, although few know about it nor do colleges inform you about it.
Although these scam artists have been swindling graduates for decades, the most busy prosecution continues to be on the country level. Illinois Attorney General Lisa Madigan has filed suit against a half dozen of those firms. Recently, however, the federal Consumer Financial Protection Bureau (CFPB) has stepped up enforcement.
Yesterday, the CFPB requested a federal court for a judgment in a lawsuit brought against Student Loan Processing, Inc. in Laguna Nigel, California. The agency alleged that the firm”and its owner, James Krause, preyed upon students searching for loan repayment aid and fleeced them out of millions.”
“In December 2014, the CFPB filed a federal lawsuit against the firm and Krause”alleging that the defendants charged consumers illegal up-front registration fees before providing any services, deceived customers about the costs of the services, and falsely represented an affiliation with the Department of Education.” Here’s a copy of the court’s proposed final judgment.
The bigger question for national regulators and prosecutors is why these companies have managed to freely work for years. They are unbelievably easy to find and access — even more so than the DE’s loan repayment site. Should you do an online search for”student loans” or”student debt forgiveness,” the sites for these firms pop up first.
When I researched and wrote about those companies for this blog and Forbes magazine last year (Maggie McGrath assisted greatly on this piece), I thought it would be wake-up telephone for your DE and CFPB. Though I feel that they’re exploring these companies behind the scenes — even a broader crackdown may be coming — it’s clear that more action needs to be taken to regulate these outfits.
In the meantime, it is possible to be cautious not to get trapped by these firms. Listed below are three red flags:
— Upfront Fees. Borrowing a page from mortgage”relief” scams which surfaced after 2008, the pupil debt scamsters request an upfront fee of tens of thousands of dollars to process forms. Although they provide almost no substantive counseling, they’ll take hundreds of bucks. It’s illegal to take such charges under a Federal Trade Commission rule.
— Ongoing Fees. To add insult to injury, firms like Student Loan Processing clipped sufferers for exorbitant charges that are continuing. According to the CFPB:
“The company charged consumers an initial registration fee for its services of 1 percent of the borrower’s national student loan balance plus a monthly maintenance charge of $39 a month for the whole repayment term of the borrower’s national student loan.” Worse still, the company did not disclose this fee arrangement to those who signed up.
— Failure to Disclose Free Federal Benefits. Here is the ironic clincher: If you have federal loans, you have repayment options. And you don’t have to pay a fee to register for any one of these. You can even consolidate your loans.
Reduce a job or heading into grad school? You can obtain a loan deferment. Only barely getting by? Then you can elect for income-based repayment. You may even increase your payments should you begin to make good money and want to pay your loan off faster, which will save on interest costs. Private loans are unique animals: you’ll have to negotiate directly with the lenders or refinance via a third party.
Regrettably, the federal loan repayment provisions are poorly communicated to the general public, which provided a massive opening for shady operators. I’m constantly asked who provides counseling on the best repayment strategies, but I can only refer them to the insufficient federal site.
It’s easier to solve a cable television problem than it is to figure out the ideal loan repayment program. I understand that’s saying a lot.
In an ideal world — or even in a marginally better one — the DE or CFPB would offer a toll-free amount for loan counselling. Better yet, Congress would enable pupils to refinance their loans at rates akin to what large banks are paying now, which is almost nothing. Do not hold your breath waiting for Congress to behave. Pare down your payments and principal now.
The Colleges Whose Students Nearly Always Repay Their Debts
The Debt-Free Degree: A eBook From Forbes
A diploma without any debt is well within your reach. Strategize a plan to overcome student loans now.
This article was written by John Wasik by Forbes and has been licensed through the NewsCred publisher community.