The purpose of this article is to help borrowers identify and avoid student loan scams. Much of the advice contained below comes directly from the Federal Trade Commission (FTC) or the Consumer Financial Protection Bureau (CFPB). I’ve also included details on some of the types of scams I’ve seen over the years.

Calling Out Scammers by Name: I’d love to make a list of known scammers as a resource for borrowers. Sadly, a scary experience dealing with a scam company makes going that route especially difficult.

What Does a Student Loan Scam Look Like?

The most effective scams that I have seen create a sense of urgency with borrowers. Act now before the opportunity disappears.

For many responsible borrowers, a limited offer is worth investigating. If there is even a chance that the offer is legitimate, the potential savings would be enormous.

While the rules for student loans do change, it never happens quickly, and it never costs any money to benefit. All federal student loan programs are free to enroll. Additionally, paying for expert help just to fill out paperwork is almost always a mistake.

This graphic from the FTC best summarizes some of the telltale signs of a scam:

Lower Student Loan Interest Rates: Real or Scam?

The good guys and the bad guys both promise lower interest rates.

What is Legitimate – There are many student loan refinance companies that can actually lower your interest rates. Most of them work with both federal and private student loans.

The legitimate companies make money by offering lower interest rates to borrowers who are highly likely to pay back their student loans. These lenders pay off your existing debt with your old lenders. Then, you pay back the new company at, what is hopefully, a lower interest rate. The aggressive advertising, lower interest rates, and sign-up bonuses often trigger the “too good to be true” alarm for many consumers.

The best way to know you are dealing with a legitimate company is that good credit will be required. They will need your credit report to determine if you are a borrower who pays back your debt and can afford the loan.

This service is normally advertised as student loan refinancing, and there are many lenders in the refinance business. I’ve ranked and reviewed the nationwide companies offering student loan refinancing. Note that although some lenders received negative reviews, they are still legitimate companies. They just provide rates and terms I think could be better.

When a Lower Rate is a Scam – One of the biggest red flags to be aware of is when a company promises you lower interest rates and student loan forgiveness. You can get lower rates by refinancing your federal loans. However, those loans become private loans and lose eligibility for federal forgiveness programs. Alternatively, you can pursue federal forgiveness, but the government won’t be cutting your interest rate.

If everybody gets a lower interest rate, it is also probably a scam. Refinance companies only make money if they are smart in choosing their customers. If they pay off the loans for people who won’t pay back their debt, they will lose money.

Obama, Trump, or Biden Student Loan Forgiveness

Scammers love to advertise forgiveness programs associated with the current president. They try to benefit from the harsh political climate by appealing to a particular point of view.

However, it isn’t fair to say that all federal forgiveness programs are a scam. It has just been my experience that if somebody attaches the President’s name to the program, it is more likely to be fraudulent in some way.

What is Legitimate – Many student loan forgiveness programs exist for federal student loans. The most common are the forgiveness programs offered through income-driven repayment plans and Public Service Loan Forgiveness. There are also programs for borrowers in certain occupations, such as teachers and military personnel.

You can enroll in the legitimate programs directly through your federal student loan servicer. No special expertise is required. Although, researching and understanding the programs is very helpful for preventing errors. Furthermore, there is no cost to signing up for any of the student loan forgiveness programs. Federal law created these programs and are often a term in your student loan contract with the government.

Legitimate student loan forgiveness does not immediately wipe away all of your debt. It takes years to reach. It is a good idea for some borrowers, while others are better off aggressively paying off their debt.

Student Loan Forgiveness Scams – One of the biggest giveaways to a student loan forgiveness scam is a high-pressure sales environment. If somebody is aggressively trying to push you into a program that will erase your debt, it should be a red flag. Another huge red flag is any fees associated with the program. Again, student loan forgiveness is federal law, and signing up costs nothing. There should be no enrollment fees or monthly costs.

Another common red flag is when a company advertises a special relationship with the Department of Education. Such a relationship doesn’t exist. Student loan programs are open to all federal borrowers. No outside company can change your eligibility.

Finally, if you are working with a company that requires your FSA PIN, now known as the FSA ID, you are likely getting scammed. The Department of Education makes it clear that the borrower is the only person who should have access to this number.

You can achieve enrollment in any student loan forgiveness program through your federal student loan servicer. Any third party that tries to enroll on your behalf likely has bad intentions. At best, they are charging you money to fill out forms that you could submit on your own. At worst, they are flat-out stealing your money or your identity.

Student Loan Consolidation Scams

Student loans are consolidated when multiple existing loans are combined into one new larger loan. There are two types of consolidation. One is federal student loan consolidation, and the other is private loan consolidation. For many borrowers, student loan consolidation is a helpful or even necessary step. Unfortunately, there are also scammers advertising student loan consolidation services.

Legitimate Student Loan Consolidation – Many borrowers elect to consolidate their federal loans to gain eligibility for certain programs. For example, FFEL loans are not eligible for public service loan forgiveness, but they can be included in a federal direct consolidation loan and gain public service forgiveness eligibility. You can consolidate your federal student loans only directly through the federal government. This process can only take place using the Department of Education’s consolidation site.

Student Loan Consolidation Scams – If you are paying for this service, it is almost definitely a scam. Whether you are consolidating your federal loans for program eligibility or consolidating on the private market for a lower interest rate, the cost to you should be $0. Another red flag is if the company you are working for asks for your FSA ID or FSA PIN.

$0 Per Month Student Loan Payments

Like many other scams, the $0 per month payment scams start with a legitimate federal program and use it to take advantage of borrowers.

What is Legitimate – Federal student loans do have income-driven repayment plans. If you don’t have any income or your income is below a certain level, your monthly payment could actually be $0. It is also possible that the government could eventually forgive your loan. This is something you can do directly with your student loan servicer and requires no expertise or special knowledge.

When $0 Payments are a Scam – If you see advertising for income-driven payments, the odds are pretty good that it isn’t legitimate. Loan servicers and the federal government don’t spend money advertising these options. They have no incentive to promote these programs. They simply make it available for the borrowers who need help. If you are seeing aggressive advertising from a company offering $0 payments, it is a huge red flag.

Private lenders don’t have income-driven repayment plans. If you see an advertisement for this, somebody is probably trying to sell you something, and you probably don’t want to buy it.

Personalized Student Loan Consultations 

There are numerous self-described student loan specialists offering personalized advice for individual student loan circumstances. This is a gray area in the world of student debt.

For the sake of transparancy, I should disclose that I am someone who falls into this category of self-described specialists offering individual guidance.

As such it probably isn’t fair for me to say who or what is legitimate and what might be a scam. What I will say is that when shopping for a service like this be wary of ongoing fees and lofty promises.

Paying someone for an hour of their time and insight is reasonable. There isn’t any reason for monthly charges, or charges based upon the amount of debt forgiven. Likewise, nobody can promise loan forgiveness or a specific outcome. Anyone engaging in either practice should be viewed with some skepticism.

Red Flags to Avoid

If the specific details covered so far don’t apply directly to your situation, the Consumer Financial Protection Bureau has some excellent general guidelines for identifying and avoiding student loan scams.

According to the CFPB, the following are all signs of a scam:

Pressure to pay high up-front fees. It can be a sign of a scam when a debt relief company requires you to pay a fee up-front or tries to make you sign a contract on the spot. These companies may even make you give your credit card number online or over the phone before explaining how they’ll help you. Avoid companies that require payment before they actually do anything, especially if they try to get your credit card number or bank account information.

Promises of immediate loan forgiveness or debt cancellation. Debt relief companies cannot negotiate with your creditors for a “special deal.” Federal law sets payment levels under income-driven payment plans. For most borrowers, loan forgiveness is only available through programs that require many years of qualifying payments.

Demands that you sign a “third party authorization.” You should be wary if a company asks you to sign a “third party authorization” or a “power of attorney.” These are written agreements giving them legal permission to talk directly to your student loan servicer and make decisions on your behalf. In some cases, they may even step in and ask you to pay them directly, promising to pay your servicer each month when your bill comes due.

Requests for your Federal Student Aid ID. Be cautious about companies that ask for your Federal Student Aid ID. Your FSA ID — the unique ID issued by the U.S. Department of Education to allow access to information about your federal student loans — is the equivalent of your signature on any documents related to your student loan. If you give that number away, you are giving a company the power to perform actions on your student loan on your behalf. Honest companies will work with you to develop a plan. Further, they will never use your FSA ID to access your student loan information.

A Couple Final Tips from the Sherpa

I once received a call from a student loan company that was going to fix my student loans. The glaring red flag was the fact that they didn’t even know my name. If you call me to offer a service and don’t even know my name, I know you are a spammer. Enough Americans have student loan debt that some scammers just call every phone number they can.

However, I’ve received mail from companies that had detailed information about my student debt situation. After some investigation, I determined that they were scams attempting to charge me for free federal student loan programs. The lesson: companies that have your loan information on file may not be legit. To this day, I have no idea how the scammers knew about my debt balance.

Finally, calls, texts, emails, letters, and ads about brand new laws and special programs from Congress are almost always scams. Any new student loan program from the government gets a ton of attention. These programs are easy to verify via a quick Google search. Don’t ever assume that some company has special access or information.

The post Student Loan Forgiveness Scams vs. Legit Programs – How to Tell the Difference appeared first on The Student Loan Sherpa.

The quick answer: Your student loans aren’t going anywhere. The abolition of the Department of Education wouldn’t result in student loan forgiveness. Instead, student debt repayment could become even more burdensome. In fact, transferring federal loans to another department or the private sector for collections could make repayment more expensive and complicated for borrowers.

Let’s take a closer look at what eliminating the Department of Education could mean for federal student loans, drawing from both recent political developments and conservative policy proposals like Project 2025.

Sherpa Thought: The connection between Donald Trump and Project 2025 is a matter of some debate. The goal behind this article is to help borrowers understand what abolishing the Department of Education might mean for them. There is a lot of legal and practical uncertainty on this topic.

There is ample evidence to suggest a connection between Trump and Project 2025, but even if there isn’t a connection, Project 2025 provides a detailed conservative framework that the Trump campaign hasn’t yet provided.

Should clarifying details into the plan to eliminate the Department of Education become available, this article will be updated accordingly.

Structural Changes: Where Would Federal Student Loans Go?

When discussing the possibility of dismantling the Department of Education, it’s important to understand that student loans would still need to be managed somewhere. The likely candidate is the Department of the Treasury. But this shift wouldn’t be seamless, nor would it be favorable for borrowers.

Federal Debt Collection Moving to the Treasury

The most likely outcome of abolishing the Department of Education would be that federal loans would transfer to the Treasury Department. The Treasury, which already handles tax collection, would take over the role of debt collection for student loans. This could have serious consequences for borrowers.

Under Treasury control, loan servicing could become more aggressive. Instead of working with loan servicers overseen by the Department of Education, borrowers might face collection techniques similar to those used for unpaid taxes. This could involve garnishing wages or intercepting tax refunds more frequently, making repayment harsher for borrowers struggling with debt.

Additionally, in the short term, things would be confusing for borrowers. Any transition is typically accompanied by both new procedures and mistakes.

Privatization of Federal Student Loans

Another possibility is that student loans could be sold off to private debt collectors. This idea aligns with conservative policies going back to the Reagan administration, which advocated for reducing the federal government’s role in education. Project 2025, a conservative think tank proposal tied to Trump’s potential future administration, envisions moving federal student loan management to the private sector.

If loans were sold to private companies, borrowers could face even more aggressive repayment tactics. Private companies have a duty to shareholders to maximize profit, and they might impose arbitrary barriers to loan forgiveness programs or income-driven repayment plans.

Sherpa Thought: In the 2020 election cycle many Democrats campaigned on the idea of student loan forgiveness for all. It was an untested legal theory that we have since learned will not hold up in court.

The notion of selling federal student loans to private lenders appears at this point to fall in the same category. It isn’t immediately clear whether or not these loans could be sold. Thus far, they haven’t, and its never really been considered.

A future adminstration could try to push this boundary. For example instead of paying servicers to manage federal loans, they could get paid by servicers and allow the servicer to keep some or all of the principal and interest collected.

The Master Promissory Note: An Important — but Limited — Protection

Borrowers sign a Master Promissory Note (MPN) when they take out federal student loans. This contract with the government is supposed to protect borrowers from drastic changes to repayment terms. However, it’s efficacy has limits.

While it offers some protection, it’s unlikely to completely shield borrowers from the significant changes that could arise from eliminating the Department of Education. The terms of the MPN and what actually happens in practice can often be different.

A good example of this disparity is the Public Service Loan Forgiveness program. PSLF is guarenteed both by statute and by the MPN. However, when the first batch of borrowers applied for PSLF, the rejection rate was 99%. Thousands of borrowers though they were eligible for PSLF, but were rejected due to confusing red tape, and at times, misleading guidance from servicers. It was until Congress, the President, and the Department of Education made some changes that PSLF started working for borrowers.

Practical Consequences: Why Repayment Could Become More Difficult

Even if programs like Public Service Loan Forgiveness (PSLF) or Income-Driven Repayment (IDR) aren’t eliminated, they could become practically inaccessible or more challenging. Here’s why:

Barriers to Enrollment and Forgiveness

The early troubles with PSLF provide a template of what could go wrong for borrowers. PSLF wasn’t eliminated, but the process of qualifying became so difficult that it was practically out of reach for most borrowers. A similar situation could arise if federal loans are transferred to the Treasury or private debt collectors.

The entities managing your loans could impose arbitrary hoops to jump through, making it difficult for borrowers to get approved for IDR or forgiveness programs. These barriers could force many borrowers to give up and pay the full balance, even if they would otherwise qualify for forgiveness.

The added complexity of transferring loans to new servicers, whether government or private, could also cause delays and confusion. Borrowers might find themselves in limbo, unsure where to turn for help with their loans. Meanwhile, interest would continue to accrue, leaving borrowers worse off financially.

Increased Costs for Borrowers

With the potential transfer of loans to the Treasury or the private sector, borrowers could face higher costs overall. These cause could include late fees, higher bills from selecting the wrong repayment plan, and less debt getting forgiven.

Project 2025: A Glimpse into Trump’s Plans

While Donald Trump’s campaign hasn’t released detailed policy plans for student loans, Project 2025, a conservative policy proposal crafted by think tanks aligned with his administration, provides insight into what might happen.

Key Student Loan Proposals in Project 2025

1. Privatizing Federal Loans: Project 2025 calls for restoring federal student loans to the private sector. This would include privatizing Parent PLUS, Graduate PLUS, and other federal loans. The goal is to allow market forces to influence educational borrowing, potentially leading to higher interest rates and more restrictive borrowing terms for students.
2. No Loan Forgiveness: Under Project 2025, loan forgiveness programs would be significantly altered. The proposal suggests a new income-driven repayment plan that requires borrowers to pay 10% of their income above the poverty line. The propsal calls for eliminating IDR forgiveness via new legislation. However, if new legislation cannot be passed, forgiveness would come after 25 years.
3. End of PSLF: Project 2025 explicitly calls for the termination of Public Service Loan Forgiveness, a program that they argue prioritizes government and public sector work over private employment. This aligns with the broader conservative goal of reducing federal support for public sector roles.
4. Taxpayers as Investors: One of the key principles of Project 2025 is treating taxpayers like investors in federal student aid. The plan suggests that taxpayers should expect a return on their investment, meaning borrowers would be expected to repay their loans in full, with no interest rate subsidies or forgiveness.

Can Trump Actually Do This? The Role of Congress and Executive Power

While Trump could use executive power to begin dismantling the Department of Education, significant changes to federal student loans would require Congressional approval. This makes the political landscape critical to any potential changes.

What Could Be Done via Executive Action?

Some changes, like moving loan management or weakening the Department of Education, could be done through executive orders. However, completely abolishing the Department and enacting sweeping changes to loan programs would likely require legislation getting passed in Congress.

It’s also important to note that even if the Department is weakened or gutted by executive action, the changes could create confusion and delays, affecting borrowers in the short term.

Congress: The Deciding Factor

If Trump were to push for the abolition of the Department of Education, he would need the support of Congress to pass the necessary legislation. This could be a tall order, especially in a divided Congress. The ability to enact sweeping changes will depend on the political composition of the House and Senate.

Conclusion: Uncertainty Ahead for Borrowers

While the idea of abolishing the Department of Education might sound like a bold political move, the reality for borrowers would likely be more complicated and costly. Federal loans aren’t going away, but repayment could become more expensive and less accessible. The transfer of loans to the Treasury or new servicers could lead to harsher collection tactics, fewer repayment options, and increased costs for borrowers.

As with any major policy proposal, it’s important to remember that what a candidate promises and what actually happens can be very different. Whether Trump or another future president moves forward with this plan, federal student loan borrowers should be prepared for uncertainty and challenges ahead.

Final Sherpa Thought: The decision to publish this article was a difficult one. There are many questions at this point without concrete answers, which opens the door to speculation. Making guesses without knowing all the facts is often a bad idea.

Ultimately, the decision to move forward with publication was based on my desire to shed some light onto a topic that hasn’t gotten much attention.

If you have thoughts that you think should get added to this conversation, please let me know in the comments below or send me an email.

The post Abolishing the Department of Education: Trump, Project 2025, and the Uncertain Future of Federal Student Loans appeared first on The Student Loan Sherpa.

However, former President Donald Trump made a surprising reference to student loans during the debate. In a sharp critique of the Biden-Harris administration, he accused them of “taunting” borrowers with the prospect of student loan forgiveness.

The Student Loan “Question” at the Debate

The topic of student loans emerged indirectly when Trump was asked whether he would veto a national abortion ban. In his response, which meandered away from the original question, Trump shifted to the issue of “terminating student loans.” 

Trump claimed that borrowers were “taunted” with promises of loan forgiveness that were ultimately blocked by the courts. He also argued that the forgiveness attempt was unfair, asserting that student loan forgiveness was struck down because it would have been unjust to “the millions and millions of people who had to pay off their student loans.”

Were Borrowers Taunted?

Whether or not borrowers were actually “taunted” depends largely on perspective. On one hand, the Biden administration’s efforts to forgive student debt can be seen as sincere attempts to alleviate a significant financial burden for millions of Americans. From this viewpoint, it’s likely unfair to say borrowers were taunted.

On the other hand, the hope and excitement that many borrowers felt when the possibility of forgiveness was on the table may have turned into disappointment when those efforts were halted by the courts. This could lead some to feel as though they were misled or given false hope.

Politically, the issue divides along party lines. Republicans may accuse Biden of making promises he couldn’t deliver, while Democrats might blame the Republican attorneys general who initiated the lawsuits and the Trump-appointed Supreme Court justices who ruled against the forgiveness plan.

Another Perspective: The SAVE Plan and Biden’s Second Attempt at Forgiveness

It’s easy to let the final outcome of the forgiveness efforts cloud our judgment when analyzing the decisions that led to this point. But instead of focusing solely on Biden’s failed attempt at student loan forgiveness, it’s worth considering his other initiatives, such as the SAVE plan and his second attempt at loan forgiveness, both of which are currently blocked in the courts and face an uncertain future.

Would borrowers be better off if the Biden administration had not attempted to create a better repayment plan or a new method of loan forgiveness? If borrowers want the administration to drop these fights, it might be fair to say they are taunting borrowers. If borrowers want the administration to attempt to prevail in court, it’s hard to argue that the administration is taunting them.

The Politics of Student Loans

Student loans have become a political football, with borrowers caught in the middle as they try to navigate the shifting political tides in Washington, D.C. 

The lines have been drawn, and borrowers will need to plan their student loan repayment strategies with the understanding that they must account not only for changes in their personal circumstances but also for multiple possible outcomes from ongoing lawsuits and upcoming elections.

Stay Up to Date: Student loan rules are constantly changing, and temporary programs create deadlines that can’t be missed. To help manage this issue, I’ve created a monthly newsletter to keep borrowers up to date on the latest changes and upcoming deadlines.

Click here to sign up. You’ll receive at most one email per month, and I’ll do my best to make sure you don’t overlook any critical developments.

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