What are Student Debt Relief Companies?

Thinking about Paying a Company to Help Decrease Your Student Loan Payments?

You may have received an offer in the mail offering to consolidate student loans. Student loan debt relief companies promise to help student loan borrowers manage their student loan repayment for a fee.

These companies may say they can help reduce a consumer’s monthly payments for their federal or private student loans by applying for forbearance, income-driven repayment plans, or forgiveness on their behalf. Some companies guarantee they can “wipe away” student loan debt by getting the loan “dismissed” or “discharged” in exchange for exorbitant fees.

Consider your Options

Often these companies charge fees for services that federal loan servicers provide for free. There’s nothing a debt relief company can do that you can’t do on your own. Although, it’s not illegal for companies to charge for services you could do for free, these companies have become popular because filling out paperwork and working with your student loan servicer can be intimidating and confusing. Borrowers can educate themselves on their options so they can avoid scams or costly services they could manage on their own. Empower yourself today by learning how you can ask your federal student loan servicer to reduce your monthly payments by asking for income-driven repayment or pausing your loans by applying for forbearance:  https://studentaid.gov/manage-loans/repayment/plans/income-driven.

Red Flags

• Be wary of companies that charge upfront fees
• If it’s too good to be true it probably is. Beware of companies that guarantee immediate forgiveness.
• Be on the lookout for companies using high pressure sales tactics, including offers only available for a limited time. These sales representatives typically earn commissions based on the number of customers they sign up.

Do Your Homework

Check before you pay any money. The Federal Trade Commission provides a list of companies banned from offering debt services: https://www.ftc.gov/enforcement/cases-proceedings/banned-mortgage-relief-debt-relief-companies-people. Many of these companies change names regularly to avoid lawsuits.

Do your research. Check out the company before parting with your hard-earned money. Ask the company to show proof of their services, licenses, and affiliations.

• Check to see if they are affiliated with the Department of Education.
• Check to see if they are offering to charge for a service you can do on your own for free.
• Check to see what licenses they hold by asking the company to show proof that they can do business in your state.

Big Decisions 

Requesting personal information. Some companies request your Federal Student Aid ID or Social Security number. This will give the company the ability to sign into your account and make decisions on your behalf. You should never provide this information without making an informed decision. 

Requesting you sign a power of attorney. Some companies may request borrowers to sign a power of attorney agreement, which would allow the businesses to communicate with your loan servicer in your name. You’re not obligated to sign such documents; in fact, doing so may cause you to lose access to your student loan account. 

Do research before responding to advertisements. Avoid providing personal information to online forms that aren’t applications for legitimate programs. 

File a Complaint Today

• You can file a complaint directly with our Department if you suspect a company has used unlawful, unfair, deceptive, or abusive practice. To file a complaint directly with the DFPI regarding a debt-relief company, visit: https://dfpi.ca.gov/file-a-complaint/.