What is a Student Debt Relief Company - And What to Watch For
There are several federally-run assistance programs for people struggling to pay their student loans. Between the Pay-As-You-Earn program, the Income-Based Repayment Program, consolidation options, and various loan forgiveness programs for those in public service. However, these can be confusing and frustrating to apply to—and borrowers often face bureaucratic challenges in benefiting from these services.
That’s where student debt relief companies come in. They offer help to students in applying to and getting into federal debt relief programs—theoretically. However, the National Consumer Law Center recently released a study that uncovered many deceptive practices in this industry.
The Center’s agents called ten student debt relief companies seeking information, examined contracts, and sorted through online complaints to identify the worst practices of these companies. If you’re considering using a debt relief company to help you get access to federal programs that could help you with your student loans, here are a few unsavory practices they found and highlighted in the study—and that you should watch for.
Charging you for free services
Many debt relief companies will attempt to convince you that some federal debt relief programs are in fact private services that they offer alone. The programs are supposed to be free to anyone, but the companies charge high fees for them. Before signing anything, do your research—and make sure you’re not being sold something that should be free.
These fees can be high—some companies charge as much as $1,600 for government services, plus monthly fees of $20 to $50. Sometimes these fees are not well disclosed.
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Offering only consolidation
Student loan consolidation programs are not right for every student. However, the study found many debt relief programs offered only this service—and counseled everyone they worked with to consolidate their federal loans through them—even students who were not eligible for federal student loan consolidation.
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Discouraging borrowers from managing their own loans
The study found that many debt relief companies practiced high-pressure sales tactics and worked to convince students not to handle their own finances—rather than focusing on counseling for students who needed information. What information they did offer was often highly inaccurate.
Unfair contract terms
The study found that many debt relief companies required students to sign contracts with terms that stacked the deck against them if they chose to sue for damages. Among those included mandatory arbitration clauses, which require customers to waive their right to go through the court system to settle disputes, as well as clauses waiving their rights to a jury trial. Many other contract terms and practices were found to violate consumer protection laws, including false advertising, violations of anti-telemarketing legislation, and requiring payment before beginning services.
Some companies demanded students sign over power of attorney to them—granting the companies unprecedented power over students’ finances, and opening the door to further potential abuses. Others required students to divulge their federal student loan PIN numbers—which is a serious privacy violation and completely unnecessary.
The bottom line is that these companies charge for many things that should be free—including filling out a federal Direct Loan consolidation form, which you can find online and submit yourself without paying a cent. For some students with loans from either traditional or accredited online schools, it may be worth the money to hire someone to help them navigate the bureaucracy involved in applying to federal student loan relief programs. But the industry is so rife with abusive practices that students should beware—and have a clear idea of what to watch out for.
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- Questions You Should Ask Before Applying for Student Loan Forbearance
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- Peer-to-Peer Student Loans: What They Are, and How They Can Help You Pay for College
- If You're Unable to Work Because of a Disability: What Happens to Your Student Loan?
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- Having Trouble Repaying Loans? The Department of Education May Be in Touch