Using deceptive ad slogans like “Obama’s New Forgiveness Program” and “We Work for the Department of Education,” private companies are charging student-loan borrowers for services that falsely claim to provide debt relief, forgiveness, and consolidation. The pervasiveness of these so-called debt-relief companies is a growing problem for millions of borrowers—a problem that gets far too little attention.
In July 2016, Student Debt Crisis and NerdWallet conducted a survey of customers of privately operated student-debt-relief companies in an attempt to shed light on their abusive profiteering. Prior to this survey, advocates, experts, and legislators remained largely in the dark about their predatory practices.
Survey results from 6,363 respondents discovered that the average borrower paid $613 for private debt-relief services that are, in fact, offered for free by student-loan servicers and the Department of Education. Sixty-five percent said their financial situation was not improved. Those who paid for student loan debt relief, forgiveness, or consolidation services reported high prices and abysmal satisfaction, confirming that these companies are generating massive revenue for assisting borrowers with something they can easily do themselves through free programs.
It doesn’t stop there. One-in-four borrowers are contacted directly by these companies on a weekly basis. Such frequency highlights the unrelenting tactics student-debt-relief companies use to entrap borrowers, including targeted social-media ads, persistent phone calls, and direct text messages. “It’s highly unethical and should be illegal for these so-called ‘debt-relief’ companies to be preying on already financially vulnerable students and graduates,” said Nicole W., a Student Debt Crisis member.
It is no surprise that borrowers who are uncertain of their financial security are vulnerable targets for these practices. 70 percent of borrowers are eligible for lower payments under government programs that cost nothing, but very few actually know about the plans.
The problem is so severe that the Consumer Financial Protection Bureau issued this Consumer Advisory to 43 million people with student debt:
We are warning all student loan borrowers who have trouble managing their student debt to watch out for scams run by companies promising ‘student debt relief.’ These companies prey on distressed borrowers who run into trouble and struggle to figure out what comes next. In some cases, borrowers do not think their student loan servicers can help them and seek help from a third party. Others are lured in by aggressive marketing practices that target the most vulnerable student loan borrowers.