Watching the Weather Channel the other day, hoping for a drop of rain, my ears pricked up at a commercial for the Student Loan Repairman, one of many companies that claims it can stop wage garnishment, “cut loan payments in half” and otherwise ease patrons’ debt burden.
With many recent grads confronting the reality of making payments this summer, and lots of critics of President Obama’s recently announced income-based student loan repayment plan pointing out that it doesn’t help everyone – Time.com says it “leaves many out in the cold,” including those with private and parent-borrowed PLUS loans — you might do a consumer service soon by educating audiences about these firms offering to do, for a price, what they mostly can do themselves.
In 2013 the National Consumer Law Center published a report, “Searching for Relief: Desperate Borrowers and the Growing Student Loan ‘Debt Relief’ Industry.” The 38-page (PDF) full report is well worth a read; its two major findings are that these companies are “mischaracterizing government programs as their own” and that they are charging high fees for things that are available for free.
I perused the websites of a few of these relief firms and indeed there is clever use of language, with the word “federal” thrown around quite freely by some, that would mislead unwary or unsophisticated consumers into thinking the firms were some sort of government-sanctioned entities.
The NCLC report says some borrowers were charged up-front fees as much as $1,600 in addition to ongoing maintenance fees.
You might want to start by contacting your state’s education department and attorney general – this spring the Arkansas attorney general’s office, for example, published an alert saying that the “industry is ripe for scams and fraud,” and the New York attorney general this year established a Student Protection Unit that is investigating misleading advertising, fees and other issues at 13 companies.
Why not see what’s being advertised in your area (Google a state or city name and ‘student loan relief’) and quiz the companies about terms, conditions and services? As well as talking with lenders, regulators and law enforcement officials about concerns they may have.
Don’t forget there are lots of legitimate loan forgiveness programs out there; MSNBC reports that enrollment has been soaring in programs for public-sector employees, for example. The FinAid.org site offers a comprehensive round-up of programs.
For background, here’s a Credit.com round-up of “9 student loan rights you need to know,” including things like early repayment, deferral and deducting the interest on federal loans from income tax liability.
And for context, here’s a Motley Fool article with a somewhat contrarian view of the student loan “crisis” – one that echoes a recent Upshot column in the New York Times, “The reality of student debt is different from the clichés.” Both are based on a Brookings report and the NYT piece says that most student borrowers end up less than $20,000 in debt.
Still, that looms large on an entry-level salary and anything financial writers can do to steer anxious borrowers away from costly “relief” is a service.