Private and For-Profit College Financing Scams
Navigating financial products and services can be challenging, especially for students seeking to invest in their education or advance their careers. There are many scholarships, grants, and federal loan programs available to help pay for college. However, not all students are eligible to participate in these programs because of their financial standing, age, or other unique personal or professional situations. In this case, private postsecondary education (PPSE) financing may be a viable option. The DFPI is committed to regulating and overseeing these services, ensuring that borrowers are protected from potential scams and fraud. Safeguard your education by using the following resources to learn about California student borrowers’ rights, protecting yourself from education financing scams, and how to file a complaint should you suspect a violation of the law.
What is Private Postsecondary Education Financing?
PPSE loans usually come from a bank, credit union, online lender, or for-profit educational institution. When considering a private loan, be sure that you carefully read and understand the terms. Private student loans often have less flexibility and fewer protections for borrowers. Never assume that you can sign a loan agreement and get out of it later. Many private student loan agreements are not renegotiable, nor can they be forgiven in bankruptcy. Additionally, private loans do not qualify for federal programs such as Income-Driven Repayment Plans, Public Service Loan Forgiveness, Student Loan Debt Relief, and most other student loan forgiveness programs.
Income Share Agreements (ISA) are increasingly being used by for-profit companies and schools offering postsecondary education and training programs. Under an ISA, a student agrees to repay a school a fixed percentage of the student’s future gross income after graduation, but only if the student is employed and making above an agreed upon amount. The DFPI licenses and regulates ISAs in California, treating these private financing products as student loans.
Understanding Your Rights
As a student or borrower, knowing your rights is crucial when engaging with private education sources and finance providers. The Student Borrower Bill of Rights establishes and protects student loan borrowers’ rights under California law. The California Consumer Financial Protection Law (CCFPL) provides a solid framework for safeguarding your interests, prohibiting companies from engaging in unlawful, unfair, deceptive, or abusive acts and practices in their advertising or delivery of services. Examples of violations include:
- False advertising
- Misrepresentation of financing terms
- Unsubstantiated guarantees regarding job placement or income upon course completion
Private and for-profit college financing scams can jeopardize your education and financial future. Unfortunately, the world of educational financing can be fraught with scams that prey upon unsuspecting student borrowers. Some examples of student loan scams include:
- Advance-fee scams: Fraudulent companies or individuals claim they can help you secure a loan or grant but require an upfront fee before they provide any assistance. Once the payment is made, they vanish without delivering the promised help.
- Loan forgiveness scams: Scammers may claim to have connections or insider knowledge that can help you qualify for student loan forgiveness but require payment for their services. In reality, they cannot forgive loans, and borrowers are left with lighter wallets and unchanged loan balances.
- Consolidation scams: Companies or individuals offer to consolidate your loans and lower your monthly payments for a fee. While loan consolidation is a legitimate service available through the U.S. Department of Education, scammers will charge you for something you can do for free, or worse, take your money and never consolidate your loans.
- Phishing scams: Fraudsters send emails or text messages claiming to be from your loan servicer or the U.S. Department of Education, asking for your account PIN or other personal or financial information. Sharing your information with these scammers can lead to identity theft or unauthorized access to your accounts. Remember, government agencies or your loan servicer will not ask you for personal or financial information through unsolicited communication. Always be cautious and verify the legitimacy of any requests for information.
Resources for Borrowers
Before entering into a financial agreement with a private lender or loan servicer or for-profit educational institution, verifying their licensing status is paramount. Take time to confirm the legitimacy of the institution to avoid potential scams or fraudulent operations.
- Student Loan Servicer Directory: This directory contains information on licensed and non-licensed student loan servicers covered by the DFPI.
- NMLS Consumer Access: This database offers licensing and registration information on companies and individuals licensed by state and federal regulatory agencies participating in the Nationwide Multistate Licensing System (NMLS).
Filing a Complaint with the DFPI
The DFPI protects consumers and ensures financial service providers, including education finance providers, adhere to the law. Filing consumer complaints is crucial in safeguarding other consumers and borrowers from unethical practices. If you suspect you’ve fallen victim to unlawful, unfair, deceptive, or abusive acts and practices by an education finance provider, don’t hesitate to File a Complaint with the DFPI, or contact us with questions at Ask.DFPI@DFPI.ca.gov or call toll-free at (866) 275-2677.