9 ways to spot — and avoid — a shady student loan 'debt relief' agency
Many young borrowers across the U.S. are facing feelings of desperation and confusion about their thousands, sometimes hundreds of thousands, of dollars in outstanding federal and private student loan debt.
In response to their vulnerability, a new student loan “debt relief” industry has sprung up, with dubious offers and credentials.
These agencies are promising help and relief for borrowers from their student debts; but with investigations running rampant for misleading advertising, improper fees and questionable contracts, these agencies are offering anything but relief.
Consumer advocates are duly concerned, with both the Student Loan Protection Unit and Consumer Financial Protection Unit taking action to investigate and stop these agencies from causing more financial harm to young borrowers.
Though this topic has been covered throughout media channels, what many have failed to mention is that, with proper caution and awareness, borrowers and their families can successfully avoid falling prey to these unethical agencies.
Read on to learn nine tell-tale ways to spot and avoid a shady debt relief agency.
Red flag No. 1 — they require power of attorney.
It is not standard practice for a lender to require power of attorney in order for a borrower to take out a loan. In fact, a person should never be required to provide power of attorney for any loan unless there is a specific need for it, such as Alzheimer’s or dementia.
Unethical debt relief agencies need power of attorney so they can complete a FedLoan Servicing application on an applicant’s behalf. First, they’ll ask a borrower for all of the information that the borrower would have to input on Fedloan Servicing’s website. Then they’ll fill out the application for the borrower, acting as the borrower.
Shady student loan debt relief agencies are charging hundreds of dollars and more for this simple maneuver.
There is only one place that every borrower — even those with great credit — can consolidate within the federal student loan consolidation program. This is through the U.S. Department of Education’s online consolidation application, Federal Direct Consolidation Loans (loanconsolidation.ed.gov).
Completing a consolidation application is something a borrower can do online anytime for free.
Red flag No. 2 — they try to convince borrowers it’s too difficult to do alone.
In truth, the FedLoan Servicing application is fairly straightforward. Plus, Fedloan Servicing has recently made improvements to make the application process quite intuitive and easier to complete.
The online application only takes about 20 to 30 minutes and can be filled out anytime. If borrowers have any questions on it, they can call FedLoan Servicing directly and receive help through the process.
Red flag No. 3 — they offer a year of no payments for the first year after consolidating — as a “unique” service.
When debt relief agencies offer this “special” benefit, in reality, there’s nothing unique about it. What they’re doing is putting a borrower’s loans in general forbearance, after their consolidation is complete. This is also something any borrower can also do online themselves for free, at FedLoan Servicing's website.
Red flag No. 4 — they offer consolidation — and only consolidation — as the one-size-fits-all solution to any student loan debt concern.