Loans: Kicking Student Borrowers While They're Down

Photograph by Michael Blann

The U.S. government doesn’t charge student borrowers anything to use a host of options to ease the burden of monthly payments. But some unscrupulous companies charge up to $1,600 for the very same help the borrowers could get for free. That’s one of the findings of a new report by the National Consumer Law Center examining how debt relief firms prey on student borrowers.

The report, based on secret shopper calls and reviewing websites and consumer contracts, presents a litany of problems: The relief firms pass the federal programs off as their own; they say they’re government approved when they’re not; they ask students to grant them power of attorney; and they provide misinformation about student debt. In a particularly ironic twist, one company copied verbatim FAQs about student loans from a National Consumer Law Center website—the very organization now investigating the firms.

Our Bloomberg News colleague John Hechinger tells the story of one borrower, a single mother, who paid a $250 fee to a private firm whose help never ended up even coming to fruition. Ultimately, the borrower contacted a debt-collection company that actually did work for the government. As Hechinger reports, “Williams spent 10 minutes filling out forms to sign up for a new plan, which reduced her monthly outlays to $8 from $136, she said.”

The NCLC says there are many things (pdf) the government can do to prevent more abuse, such as requiring companies to disclose their fees up front and enforcing existing laws more strictly. But there will always be scammers out there, so perhaps the most feasible improvement would be if the government made it easier for students to navigate the federal repayment options on their own. If the federal aid programs were simpler, students wouldn’t be lured by scams in the first place.

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