Consumer Alert!

Note: Be aware that if you re-finance your Federal student loans into private loans with a bank, the monthly loan payments cannnot be discounted and you cannot get them forgiven.

A recent report by NCLC investigated the growing “student loan debt relief” industry that has sprung up in response to the demand for borrower assistance and the dearth of reliable resources. Many “student relief” organizations were found using deceptive advertising and numerous potential legal violations of consumer protection laws.

The National Docu Center strongly recommends you to be aware of these practices, take precaution, and look into consolidating your own student loans with the Department of Education directly at no cost. Listed below are some of the numerous problems with this industry, including:

1. Student loan debt relief companies mischaracterizing government programs as their own
   
   
2. Quick Loan Forgiveness: Student loan debt relief companies say that all you need to do is make x number of payments to them and then all of your student debt will be forgiven. That is not how the forgiveness plans work: you need to be enrolled into an IBR program for either 10 years or 20 years, and then IF you have a balance left over at the end, then its forgiven.
   
   
3. Selling a One-Size-Fits-All Approach
   Despite claims of broad services, most of the representatives of these student loan debt relief companies acknowledged that they offered only loan consolidation. There are numerous problems with this approach including that consolidation is not an appropriate product for all borrowers and may not even be available to all borrowers.
   
   
4. Improperly Claiming Government Affiliations
   For example, stating that they are an “approved servicer” with the U.S. Department of Education is inaccurate. Companies should not say they have a special arrangement or relationship with the Department of Education or imply they have access to programs or solutions that consumers do not.
   
   
5. Discouraging Borrowers from Handling Their Own Cases
   The debt relief companies seize on federal government incompetence in selling their services. This may be an appealing selling point, but it is deceptive if the companies go too far in implying or in some cases stating explicitly that a borrower cannot get relief on her own.
   
   
6. Numerous potential legal violations of consumer protection laws, including the federal Credit Repair Organizations Act (CROA), Federal Trade Commission (FTC) Telemarketing Sales Rule, state debt settlement and debt management laws, and unauthorized practice of law provisions.
   Abuses in the debt relief industry are not new. The abuses grew so severe in the credit card counseling, foreclosure rescue, and debt settlement industries in recent years that the federal government and many states passed laws to crack down on abuses. Most of these laws should apply to student loan debt relief companies. Many of these companies appear to be routinely violating all or some of these laws intended to protect consumers.
   
   
7. Providing Inaccurate Information about Consolidation and Garnishment
   Many Websites claim, especially in their testimonials sections, that they can consolidate loans when the borrower has a wage garnishment in place. This is inaccurate and misleading as Federal loan consolidation cannot be done when there is a garnishment order in place.
   
   
8. Providing Inaccurate Information about Collection Fee Amounts
   A number of sites state that rehabilitation can cost you up to an additional 40% in fees on top of your balance. This is inaccurate as fees for FFEL and Direct loan collection are limited to 18.5% as part of rehabilitation. In addition, a number of Websites state that collection agencies can take up to 40% in fees when they collect, whether through rehabilitation or not. The allowable limit for the vast majority of student loans is 25%. The allowable limit for consolidation and rehabilitation is 18.5%.
   
   
9. Providing Inaccurate Information about Credit Reporting Implications after Default
   A number of Websites state that borrowers will no longer have a default notation on a credit report after consolidating. This is false as only rehabilitation requires that the default notation be removed from a borrower’s credit report. With consolidation, the default notation remains, but the new loan is shown as current going forward. Even with rehabilitation, the other derogatory history is not removed from the credit report until it becomes obsolete.
   
   
10. Grossly Over-Exaggerate How Much Money They Will Save Student Loans
    Many student debt relief Websites state that they can lower loan payments down to $5 a/month.