Debt consolidation sounds like a great idea to a young adult who has recently graduated from college or grad school, doesn’t have a job lined up yet, and their student loan payments are now coming due. For many students, loans are the only way they can pursue a college degree, which they feel is necessary in order to compete for a desirable career. While in school, they push the thought of loan repayment far into the recesses of their mind, assuring themselves that they will have a high paying job when they graduate that will allow them to repay the loans. Once out of school and faced with real world financial pressures of bills, rent, insurance, and now student loans, many young adults are turning to debt consolidation for relief.
Whenever you find a segment of society that is vulnerable, inevitably, there will be those that look to capitalize on the situation. Debt consolidation is no different, and an abundance of scams and fraudulent companies are now taking advantage of those seeking loan relief. According to the Federal Reserve Board of New York, there are 37 million student loan borrowers with outstanding student loans today totaling approximately $902 billion. While reputable student loan consolidation can help make repayment of several student loans more manageable by combining them into one lower loan payment with a new repayment term and interest rate, student loan debt consolidation scammers are only looking to collect additional fees and premiums for their services.
There are a number of ways that debtors can be taken advantage of by predatory companies, including misleading advertising, high fees without appropriate notice, and enrolling young adults in costly debt relief programs that are available to them for free through the Federal government. Reyna Gobel, student loan expert for Wisebread.com and author of CliffaNotes Graduation Debt, warns:
Scammers are definitely taking advantage young adults’ needs for student loan repayment options. If you have Federal student loans, you automatically qualify for free debt consolidation programs offered by the U.S. Department of Education, the agency that oversees federal student loan programs, which offers the best repayment plans and terms on Federal student loans.
If you have private loans and can’t use the Federal programs, there are a few things to watch for.
- Be sure you are the one that contacted them. Chances are, “if you didn’t contact them, they are looking to sign you on to collect fees you would not have to pay by going through the Federal Student Loan Consolidation program or even through your own private lender for personal loans, and that’s a scam,” says Gobel.
- If you feel that the company is putting pressure on you to sign up, they likely aren’t in it for your best interest. Beware the “expiring interest rate”, “urgent” deadlines, and other similar tactics.
- Be leery of discounts. Fraudulent companies will often promise discounts, only to put conditions on them in the fine print. The discounted rate may only apply to part of the loan, or will go away after a time. Other times, the rate is low until you miss a payment, then it skyrockets for the rest of the life of the loan.
- Never, ever, give personal info over the phone or email.
In many circumstances, debt consolidation with a reputable company, or the Federal government, can offer substantial benefits for those with student loan debt. However, everyone has to be on guard for debt consolidation companies that are primarily looking to profit from your difficulties in repaying your student loans.