Two student loan debt-relief scams were shut down by government agencies in December, but the danger still exists for young borrowers desperate to escape the high cost of college.
College students and parents have been warned for years to be wary of companies that offer ways to escape crippling student loan debt, but that hasn’t stopped many such companies from fleecing consumers for thousands of dollars.
Thanks to the Consumer Financial Protection Bureau, two such organizations shouldn’t be causing trouble for much longer. The federal watchdog group teamed up with Florida’s Attorney General to accuse Tampa-based College Education Services of charging millions in illegal fees before it stopped operating in 2013.
According to regulators, College Education Services charged anywhere from $195-$2,500 in upfront costs for debt negotiation services. Under federal law, companies are prohibited from collecting payment until at least one debt has been reduced, renegotiated or settled. Not only did College Education Services violate this rule, but they also failed to deliver the promised results and even made debt payments higher.
The Bureau action should ban the company and its owners from working in debt-relief again.
In a separate action, the Bureau sued California-based company Student Loan Processing.US to block them from providing allegedly illegal student debt-relief services. Student Loan Processing owner James Krause expressed surprise about the lawsuit in the Orange County Register and stood by the service his company provided.
Student Loan Processing is in hot water for allegedly using a logo that looked like a government seal, and violating mail tampering procedures with their marketing materials. Essentially, the company was falsely representing itself as a government agency. It also failed to disclose a monthly service fee.
Regulators are urging consumers to look into loan repayment offers through the Department of Education instead of turning to potential scammers. The DOE offers several different plans for former students who are struggling to pay back debt.
Pay As You Earn and Income-based repayment are much safer ways to make loans more affordable. Income-Based repayment caps at 15% of an individual’s discretionary income and forgives any balance left over after 25 years of payment.
“In this era of rampant identity theft you should also be weary of any company that asks for a credit card, bank account or any other sensitive information unless you are absolutely certain that you are dealing with a reputable agency,” says John Diaz, spokesperson for Debt Management Group. “It always pays to do your research first.”
Anyone with suspicions about an alternative debt-relief service should file a complaint with the Consumer Financial Protection Bureau.