Many of the 44 million borrowers are struggling to repay their more than $1.4 trillion in student loan debt in the United States. The options for federal student loan borrowers can be good, but as the Consumer Financial Protection Bureau’s many reports and recent lawsuit against Navient demonstrate, accessing those options can be a confusing bureaucratic nightmare. These conditions create a fertile market for the “student loan debt relief” industry.
Unfortunately, many of these companies offer very expensive products that have very little value. Most of these companies are for-profit, although there are issues with a growing number of nonprofit organizations as well. In 2013, the National Consumer Law Center (NCLC) issued a report investigating this growing industry.
More than 4 years later, these companies are still going strong. On Friday, the Federal Trade Commission and the Attorneys General of 11 states and the District of Columbia announced a task force to tackle the ongoing problem. They also announced new cases and a judgment against a debt relief scammer. They alleged that, in total, those companies had obtained over $95 million from unsuspecting student loan borrowers. Many of these companies had used tactics that our secret shopper had identified in the 2013 report, such as claiming to be affiliated with the Department of Education.
Law enforcement actions, such as the ones taken by the FTC and the Attorneys General are critical. Borrowers rarely have the resources to take on these scammers on their own, and even if they did, often the borrower’s money is long gone. In many cases, only law enforcement can shut these companies down. This is why the FTC and AGs’ announcement is so important.
However, with millions of student loan borrowers in distress and thousands of debt relief companies looking to profit from their pain, this problem cannot be solved by law enforcement alone.
The United States government has responded to growing levels of student loan debt by creating an array of borrower assistance programs. Borrowers should be able to get this relief for free; however, it is rarely easy. Government programs are unnecessarily complex and borrowers too often confront an impenetrable bureaucracy that prevents them from accessing their rights. To compound these problems, there are few reliable resources borrowers can turn to if they need help. (Federal student loan borrowers can find their servicer or debt collector by going to the National Student Loan Data System and can go here for some additional resources.)
Only when borrowers can easily access the assistance they need from reliable sources will these companies go away. Until then, the ground is fertile for fraud and these scammers will thrive and grow.
Debt relief companies strategically use lead generation, social media, and credit bureau data to position themselves in front of the borrowers who need to help. Borrowers report receiving letters and phone calls by people who know their loan balances, and see ads promising loan forgiveness.
In addition to creating better options for borrowers to access their loan options, policy makers and the companies that enable these types of ads (e.g. social media and credit bureaus) need to find a way keep scammers from targeting desperate borrowers. NCLC is investigating how these companies target and rip off student loan borrowers. Have you received texts, calls, or mail advertising student loan debt relief services, or have ads appeared when you have gone on the internet or social media? Click here to fill out our quick survey and/or send us a picture!