Time and again, parents and college students have been told to tread carefully with companies that promise to help you get out from under the burden of student loan debt — for a price.
Many of these debt relief companies — operating in an era of ever-escalating student loan debt — are scammers, according to regulators. And they continue to find new victims who are desperate for help.
In December, however, the federal Consumer Financial Protection Bureau took action to shut down two of them. The watchdog group, with help from Florida’s attorney general, accused College Education Services of Tampa, Fla., of taking in millions of dollars in allegedly illegal fees from thousands of consumers before it ceased operations in early 2013.
The consumer protection agency, in a separate action, sued to block California-based Student Loan Processing.US for allegedly marketing student debt relief services illegally.
Representatives of the two companies could not be reached for comment. However, Student Loan Processing owner James Krause told The Orange County Register he was surprised by the lawsuit and “we stand by our services.”
The government court filings lay out in detail how these two businesses allegedly preyed on federal student loan borrowers.
College Education Services charged consumers $195 to $2,500 for negotiating services and required all or most of it upfront, according to the consumer bureau. Federal law requires at least one debt to be renegotiated, settled or reduced before a company can collect payment.
According to regulators, College Education Services promised borrowers it could solve all their student loan issues and used Internet ads and telemarketing guarantees of lower monthly payments. However, the bureau said, the company “often failed to deliver the promised results” and often “selected monthly repayment plans that increased payments.”
Regulators said they took the action to ban the company and its owners from running any debt relief businesses.
In the case against Student Loan Processing, the government accused the company of using a logo that resembled a government seal, stamping “Official Business” on its mail to consumers and citing federal law prohibiting mail tampering to “create the impression” that the marketing material was sent or endorsed by the federal government.
By using these techniques, the government accused the company of falsely representing itself as being affiliated with the U.S. Department of Education.
The lawsuit also accused the company of charging illegal advance enrollment fees of either 1 percent of the borrower’s federal loan balance or $250, whichever was higher. In addition, the company allegedly failed to disclose to borrowers that it charged a monthly service fee that continued until the loans were paid in full or discharged, a “timeframe that could last decades,” according to the government regulator.
To avoid trouble, the consumer protection bureau reminds borrowers that the Department of Education offers several programs, such as Pay As You Earn and Income-Based Repayment plans, to make payments more affordable. And unlike debt relief companies, the government’s programs are free.
The bureau also said borrowers should avoid companies that require payment upfront before they actually do anything, especially if they try to get a bank account or credit card number or require that a contract be signed.
Finally, be careful about companies that ask for your Federal Student Aid PIN, which essentially opens your student loan account to the company.
If you’re suspicious of a debt relief business, file a complaint with the consumer protection agency. Go to www.consumerfinance.gov/students.
That’s one way to send a message to potential scammers.