You’re likely to have seen online ads or received emails from student loan debtors. You’ll see them more often as the student loan relief measures under the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act expire on January 31, 2022.
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Scammers who prey on students trying to navigate an often-changing and complex system, whether they promise loan forgiveness or charge outrageous fees for tasks that you could perform yourself, prey upon borrowers. Understanding how student loans work and recognizing warning signs is key to avoiding scams.
How student loans work?
College can be expensive. A bachelor’s degree at a public university costs $30,030. Most college students take out student loans to help pay for their education. According to a report from The Institute for College Access & Success, 62% of college seniors who graduated in 2019 had student loan debt.
Instalment loans for student loans can be referred to as student loans. You will repay them by making monthly payments over a specified loan term (e.g. 10 years). These loans are an unsecured type of debt that doesn’t require collateral and aren’t subject to any restrictions. You will pay interest at either a fixed interest rate or variable interest rate on the amount borrowed, depending on which option you choose when you take out your loan.
There are two types of student loans.
Federal student loans: These loans are issued by the Department of Education and have lower interest rates than private loans. Federal loans are subject to a fixed interest rate and have a default repayment period of 10 years. The interest rate for undergraduate students is 3.73% on loans that were disbursed between June 1, 2021 and June 30, 2022. Generally, federal loans are exempt from any government action regarding student loans.
Private: Private student loans can be issued by specialty lenders, banks, credit unions, and credit unions rather than the government. You must meet income and credit requirements to be eligible for a loan. Federal loans have a lower interest rate and repayment terms than private loans. According to TICAS, rates for undergraduate private loans were as high as 14.24% by 2019.
Common Scams with Student Loans
The Federal Trade Commission revealed that it had sent $1.7 million to student loan borrowers that were unable to pay back their loans due to a company they believed was affiliated with the Department of Education.
According to the FTC, this is not the only example of scammers using deceptive tactics to collect illegal upfront fees from student loan borrowers over many years.
What do these student loan frauds look like? There are many ways they can appear?
- They promise loan forgiveness
Although there are legitimate student loan forgiveness programmes, they have strict eligibility requirements and will only be available to a very small number of borrowers. Most people don’t know how these programs work and are therefore vulnerable to being misled by student loan forgiveness scammers.
Teacher Loan Forgiveness: This program allows teachers to receive up to $17.500 in loan forgiveness if they work in low-income schools for five consecutive academic years. The full amount of forgiveness is only available to teachers who are qualified in specific subjects such as mathematics or special education.
Public Service Loan Forgiveness: Students who work for government agencies or non-profit organizations can apply for PSLF. You must have worked for a qualifying employer for at least 10 years and make 120 qualifying monthly payments. PSLF is notoriously hard to get. Kantrowitz says that only 2 to 3 percent of PSLF applicants are able to get their loans forgiven.
- They claim they can lower your payments or consolidate your debt
For a fee, many companies (sometimes called paperwork student loan companies) will promise to lower your monthly payments or combine your loans. Problem? The problem?
- They ask for your Federal Student Aid (FSA ID) or other personal information.
Scammers might instead of trying to get your money upfront.
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Scammers may ask for your FSA ID in order to reduce your monthly payments or apply for loan forgiveness. It is not a good idea to hand over your FSA ID.
How to Avoid Scams with Student Loans?
You now have a better understanding of some of the most prevalent student loan scams, and what to do if you see promises and offers. These are just a few more ways to avoid falling for scams.
- For any questions, contact the Federal Student Aid Information Center
You can contact the Federal Student Aid Information Center, which is a contractor for the Department of Education. Kantrowitz says it’s a great resource for information about federal student aid and FAFSA. You can reach the Federal Student Aid Information Center at 800-433-3243, or by chat.
- For any questions, reach out to your loan servicer
After your loan has been paid off, your loan servicer will manage them. Your servicer is the person you pay your loans and who you contact if there are any questions about your debt. Are you unsure who your servicer might be? You can look it up in the National Student Loan Data System or by viewing your credit report at AnnualCreditReport.com.
- Ask your Financial Aid Administrator for assistance
Don’t be afraid to ask your college’s financial aid officer if you’re unsure if it’s a scam.
Kantrowitz says, “Ask your financial assistance administrator to look into it.” They are usually willing to help, even if you have graduated years ago.