Since we wrote our report on the student loan “debt relief” industry in 2013, we have unfortunately seen this industry grow and engage in even more abusive practices. We summarized our concerns in this presentation that Deanne Loonin gave by skype to the Association for Student Loan Relief’s Las Vegas conference this past week.
In this case, we do not believe that what happens in Vegas should stay in Vegas! We are alarmed at the proliferation of these companies, particularly the use of new and more aggressive marketing tactics. Among other concerns, some of the companies appear to be actively steering borrowers away from contacting their federal loan servicers.
Here is an example from one company’s email to a borrower:
“I wanted to follow up with you just in case your current student loan servicer has reached out to you in an attempt to help you reduce your current loan payments and I want to say DON’T DO IT. The programs they can offer you are not nearly as beneficial to you as what the government has established for you, that’s what [name deleted] will get you an approval for. At [name deleted] we only enroll our clients into government approved programs run by the Department of Education that provide true debt forgiveness, these programs are complex but don’t worry we can help.”
This example is one of many counters to the industry’s arguments that borrowers are knowingly choosing to pay for services they can get for free, just like tax preparation. Perhaps the comparison might make some sense in an ideal world where the companies were providing quality service, accurately informing borrowers that they can contact their servicers and get into the same programs for free, informing borrowers that the “debt relief:” companies have no special access and do not offer any special programs, and encouraging borrowers to check in with their servicers. But just read the complaints filed by the office of Illinois Attorney General Lisa Madigan to see how far off the real world practices can be from the ideal.
Borrowers stand to lose a lot of money if they sign up with these companies. Perhaps even worse, they may lose important rights. There are many existing federal and state laws that apply to these companies, but regulators have to step up just as Attorney General Madigan has done.
We know there are serious problems with the federal student loan servicers. We understand why borrowers get frustrated dealing with servicers. We advocate for systemic reform. This is key, but the demand for quality servicing cannot be an excuse to rip off consumers.