Problematic Debt Relief Industry Targets Student Debt

Couple Frustrated at Computer 150x150 Problematic Debt Relief Industry Targets Student DebtStudent debt, an issue that has been on the minds of a growing number of college students and graduates, is finally getting some much needed national attention.  Earlier this week, President Obama signed an executive order to help ease the burden that millions are shouldering.  Over five million more people will now have debt payments capped at 10% of income and loan forgiveness after 20 years of payments.

Not surprisingly, the student debt issue has caught the attention of more than just the government. In fact, entrepreneurs with tarnished reputations are now offering to “help” students and graduates with their debt. Enter the blossoming student debt relief industry.

Many of these businesses aren’t new to the game.  BBB has confirmed several connections between previous debt negotiation companies and current student debt relief companies.  After coming under fire over questionable practices from the Federal Trade Commission (FTC) and BBB in 2010, the debt negotiation industry simply evolved their old practices to apply to a more specific and, arguably, more vulnerable population: students.

The way they do it is simple.  Student debt relief businesses target college graduates riddled with debt by charging a fee for services to help reduce the debt – the same services offered by the government for free. While it’s not technically illegal to charge for services that are available free from the government, it’s not hard to see that some customers may feel taken advantage of.

Some early adopters of the current business model also make claims that raise red flags.  A report done last year by the National Consumer Law Center (NCLC) outlines many of the problems identified with these businesses.  Some say their businesses are affiliated with government programs, claims which were found to be false.  Some claim that they offer several repayment plans when in reality the only service they offer is assistance in consolidation of loans into one payment.  A majority of student debt relief services also fail to disclose the fact that the services they are providing are offered elsewhere for free.

While claiming that services will be provided for a set, low monthly fee, student debt relief businesses often significantly increase the price shortly after an agreement is made.  And beyond that, the services aren’t actually provided.  People already struggling with debt from student loans simply cannot afford to fall prey to those trying to take advantage of them.

From a current college student’s point of view, I can attest to the fact that the pressures of life in “the real world” can seem overwhelming, and the mountain of debt that faces so many of us as soon as we graduate makes it that much worse.  It can be incredibly tempting to jump at offers that seem like an answer to your prayers, but don’t let yourself be taken in by those that may seek to capitalize on your fears.  To avoid the bad actors, the BBB suggests you be on the lookout for these warning signs:

  •  Attempting to convince you that you can’t complete the debt management process on your own.  In fact, the process can be done for free through the Department of Education and is typically fairly straightforward.
  • Stressing consolidation as the solution for everyone’s debt issues.  Many people would not benefit from consolidating their loans and should explore other options.
  • Providing little to no information about staff credentials and who the employees and owners are.  A reputable business should make it clear who is behind business and why they are trustworthy.
  • Being unclear or confusing about the price of the services. Any business should be clear about all prices and fees.

As always, research any company you are planning on doing business with by visiting BBB Business Reviews show the BBB rating from A+ to F, a summary of consumer complaints, if any, and more.

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About Jordan Fowler

Jordan Fowler is the Investigations Intern for the Better Business Bureau serving Dallas and Northeast Texas. She is a junior at University of Arizona where she is pursuing a degree in journalism. Her hometown is McKinney, TX.