Eliminate student loans with a click of a button? Count me in!Submitted by Dorval & Chorne on February 5th, 2019
By Keagan Kinsella | February 5, 2019
Yes, you’ve heard it before…if it seems too good to be true, it probably is.
● Calorie-free chocolate cake?... Um, yes please!
● Lose 20 pounds in one week?... While eating chocolate cake? Sign me up!
● All-expense, paid vacation in exchange for this “1-minute survey”?... I’ve got all day!
● Wash away $50,000 of student loans in 10 years, with one, simple payment of $40/month?... I’m listening!
If this is what you’re hearing, it definitely sounds really good. You might read something like “You are now eligible to receive benefits from a recent law regarding federal student loans, including total forgiveness” or “Backed by the US Department of Education,” which seems like it must be legitimate... I mean, it’s the LAW, right?
According to a Forbes study, in 2018 the average student had $37,172 in student loan debt. In fact, student loan debt has risen above credit card and auto loan debt to become the second most-prevalent, consumer debt (right behind mortgages). It’s a serious issue, and with interest rates that could reach double digits, students are finding that the monthly payments are no joke. So, it comes as no surprise that student-loan debt relief, and consolidation companies, are popping up left and right, targeting former students like you, who may feel like their student loans are just too big of a burden to carry. Places with names like “Premier Student Loan Center,” “National Student Alliance,” “Student Debt Doctor,” and “My Financial Solution” are a handful of the latest in the game, and we have found they have some questionable tactics.
Typically, the process begins with a robo-call, or some sort of email/mail communication that indicates a limited-time offer which requires prompt action! You might question it for a second, but then they start in on how they can take care of all your student loan debt and put you on a simple payment plan. The best part? You get to stop paying on your current loans. The exchange? An upfront fee of a few hundred dollars, and then only 120 simple payments of something like $50/month. You can do the math, but that sounds like quite the deal to me in exchange for tens of thousands of dollars of debt forgiveness which could normally require a monthly payment of over $500 (assuming 5% interest) …sounds just like zero-calorie chocolate cake!
They might tell you in the details about income-based payment plans, annual refiling to ensure eligibility, and collect personal information like your federal student ID, Social security number, and credit card number. Next, you meet all the qualifications, get all set up with the program, and think it should be smooth sailing for the next ten years. I mean $50/month, really? You just got off with the best deal ever. A few years later, after making these $50/month payments, you come in and meet with someone like us to talk about financial planning. Our eyebrows raise…because here is the likely scenario:
We look at your current federal student loan statement, and guess what, the balance hasn’t changed since you left school! It says it is in deferment, and there is a 5% interest rate. Hmm, we think, how could you still be in deferment if you have been out of school for three years already? First red flag has been raised. Then we go look up the name of the loan consolidation company you used online, and it doesn’t even appear on the first page of searches, because the first twenty links are all regarding scam complaints. We click on one of those complaint links and it is for the Better Business Bureau (BBB). Turns out there are hundreds of people reporting all sorts of problems with the process, and they feel like they’ve been scammed….and we think you might be among one of the scammed. Nobody has been paying your student loan bills this entire time.
We had a twenty-something nurse come in with almost this exact situation the other day, and her experience is my motivation behind writing this blog. It was awful to break the news to her. She hadn’t received concerning notices from her student loan provider because the company, using her ID, changed her billing address. Her loans had gone unpaid and slipped into default, meanwhile she was under the impression that everything had been taken care of (that’s what she paid for, right?) So, what were you paying for each month then? Good question…basically the scam company was just consolidating your loans for you. FYI, you can do that for free (and we will tell you how).
What would you do next? Well, if you think you have been scammed by one of these companies, here is what we would recommend looking into:
- Contact your original loan provider, tell them your situation, and see if they have been receiving any payment.
- If they haven’t been paid, contact the scam company and immediately get out of the program, and request a refund (warning, this may be a difficult process).
- Look into your credit score and potentially consider freezing it.
- Reach out to the Consumer Financial Protection Bureau if necessary.
The best-case scenario would be for you to avoid this whole situation. One of the best ways to do this is to do your research and ask questions. If you were to ask someone like our group for advice, we look at this kind of situation from a different perspective. If you have various student loans, our first question will be, “What are the interest rates?” It is not uncommon to see loans at or around 4.25%, which isn’t quite as unreasonable as the 7-10% some are getting on the high end! A lot of times someone will bring in a statement through a company like Nelnet, and there are 15 different, smaller loans, each with a different rate…overwhelming is an understatement! Our advice can differ depending on your loan balances, interest rates, and your cash flow situation.
If you are looking for an option to consolidate your student loans in a completely legitimate (non-scam) way, we have something for you to consider. The Minnesota Department of Education now offers a program called the Minnesota Self-Refi Program. This is usually best for a Minnesota resident with multiple, high-interest loans who is seeking simplicity and a quicker loan payoff time period. You need a minimum of $10,000 in student loans to refinance and be currently employed. For a 5-year repayment, the current interest rate is 4.25%. The 10-year rate is currently 5.50%.
If you don’t want to deal with refinancing your loans, and you do want cash flow to dedicate to paying more on your student debt, here’s what we recommend:
- Step 1: Pick out your highest interest rate, smallest balance loan(s).
- Step 2: Make minimum payments on all the loans, but apply your extra cash to the highest interest, smallest balance loan and pay it off.
- Step 3: Boom – just like that, one monthly payment gone! Now take the amount you were paying on that loan, and start paying more on the next highest interest, smallest balance loan until it is gone.
- Step 4: Repeat Step 2-3 again until all loans are gone…then celebrate!
Every situation is different though. Some people are saving a lot and they have more money to pay off their loans quicker, while others are trying to minimize their monthly payment. If you have questions about your specific situation, we would be happy to help you. Most importantly, we want you to be aware of the world of false promises and scams that surround student-loan debt. Keep your eyes out for anything that seems too good be true. As mom told you, it very likely might be.