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How to spot student loan scams

Ned Ehrbar
Producer

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Borrowers beware: With $1.5 trillion in outstanding student debt in the United States, student loan scams are on the rise, according to William M. Francavilla, a certified financial planner and the author of “The Madoffs Among Us.” Francavilla warns that the opportunity is too tempting to resist for scammers, who prey on the fears of deep-in-debt grads.

“When there’s a lot of money at risk, guess what? Then the bad guys introduce themselves to the equation so that they can get one of two things from the 44 million Americans who have student debt,” Francavilla tells Yahoo Finance. “Number one: money, or number two: information, so they can further access money.”

The numbers are pretty staggering. “There is $1.5 trillion of outstanding debt relative to student loans,” Francavilla says. “Forty-four million Americans are currently carrying some degree of student loan debt, and 8 million are technically in default. Twenty-five percent of this population admit to having trouble making their monthly payments.”

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Student loan scams calling

Most companies pushing student loan scams will contact you by phone. In 2017, only 3.7% of all incoming mobile phone calls were scams, according to the AARP. That number jumped to 29.2% in 2018.

“It’s projected for next year to be closer to 45%,” Francavilla says. “Almost one in every other phone call coming in.” Better start screening those calls — if you haven’t already.

Professional scammers can sound very convincing and might say they’re from a student loan company that forgives debt. It might sound something like this: “Hi, I’m with such-and-such an organization, and we’re affiliated with the Federal Student Loan Association. We are in the debt forgiveness business. We can minimize your payments. We can lower your interest rate. We have a program where we can forgive your debt.”

“Don’t fall for it. It’s a scam,” Francavilla says.

The giveaway that you’re dealing with a scammer is the claim that the caller is affiliated with the Department of Education’s Federal Student Aid office. “There are no affiliated organizations that work with” that office, Francavilla warns. So be wary of anyone who claims to be.

Trust but verify

“Incidentally, the Federal Student Aid organization will tell you if a company is a scam or not,” Francavilla says, explaining that while the agency doesn’t affiliate itself with any private firms, it does keep a running inventory of companies that work with consumers working to pay off student debt, highlighting which companies are reputable and which are running student loan scams. “Some are actually doing a good service and maybe you should consider,” Francanvilla says. “But the overwhelming majority are not.”

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