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Few things strike fear into a student loan borrower’s heart more than receiving communications from their loan servicer. Money matters often put us into a panicked state where we’re less than rational — and more likely to fall prey to scams. Unfortunately, these schemes are on the rise, so it’s never been more important to know how to recognize the signs of student loan scams and protect yourself.
Whether you’re worried you’ve been conned already or just want to take precautions for the future, you’re in the right place. In this article, we’ll run through why student loan scams are increasing, the most common types, ways to protect yourself, and what to do in the aftermath.
The rise of student loan scams
When it comes to scams, we all think that it could never happen to us. Surely you’re too tech-savvy and intelligent to fall victim to such things? Yet, with billions of dollars lost to fraud and scams every year, nobody should be too confident.
Even more worrying is that student loan scams have risen recently. In September 2023, there were over 350,000 robocalls related to student loans in two weeks. This isn’t just some one-off event — the Federal Trade Commission received 385 complaints about student debt relief scams in June, but the number increased to 562 in July and 610 in August.
In August 2023, the Department of Justice and FTC had to return $9 million to fraud victims who believed they were enrolling in an actual debt relief program.
What gives?
Why they’re rising
The spike in student loan scams is partly due to recent events in the borrowing world.
During the pandemic, the government paused repayments on federal loans for many borrowers, but these payments resumed in October. Plus, the Supreme Court ruled against the Biden Administration’s plans to cancel $20,000 of student loans through loan forgiveness.
This created the perfect storm for scammers. Suddenly, many borrowers were left confused about the status of their student loans and whether they were eligible for government programs or forgiveness.
It also doesn’t help that many people are struggling financially right now and fearing a recession, making them eager for solutions — even if they sound too good to be true.
Common student loan scams
Broadly speaking, student loan scams fall under the following three categories:
- Debt relief scams
- Identity theft
- Phishing
We’ll run through each one in detail.
Debt relief scams
Promising instant debt relief is a surefire way to get the attention of people with student loan debt, and that’s precisely what many scammers do.
Transcripts from scam calls found that many fraudsters claim to be reaching out to borrowers regarding their student loans, offering to lower or postpone monthly payments. Sometimes, they even offered to forgive the loan completely, refund the money paid so far, or remove missed payments from the credit history.
Signs of a debt relief scam include being told that:
- A debt relief program will end soon
- Enrollment in a program is first come, first served
- Your account has been flagged and you need to take action
- A new law or discontinued program has come into place
Lots of these tactics create time pressure, making people more likely to make poor decisions.
Identity theft
Another common student loan scam is identity theft, which aims to make you hand control of your accounts or personal information over to scammers.
Look out for anyone telling you to sign a power of attorney or third-party authorization. This gives a fraudster the authority to handle your student loans on your behalf and stops you from being able to contact the loan servicer yourself. Also, by controlling your account, they can stop you from receiving any communications that would make you realize they’re not who they’re claiming to be.
If this happens, scammers could use your student loan account to access your personal information and possibly more of your accounts. For instance, they could set up a credit card or mobile phone account in your name — or target you in future scams.
Phishing
Phishing is when scammers send you fraudulent information while posing as a legitimate organization. This takes advantage of authority bias, a natural human tendency to trust people in a position of authority and put our guard down, which harms our decision-making. It’s particularly effective for student loan scams since many people aren’t sure who the relevant authorities for their loans are.
Some scammers claim to be the Department of Education or Student Services, while others are more vague about which organization they represent. Another group got caught pretending to be associated with “Biden Loan Forgiveness.”
Phishing scams can take place via robocalls, text, social media, email, and even letters through the mail. You’re not even safe if you’re browsing social media and click a link about a loan forgiveness program by accident, so always have your guard up.
It’s always best to call your loan servicer directly (with the number on the official website) to verify the identity of the organization that contacted you.
How to protect yourself from scams
Now you have an idea of what kind of scammers are out there, it’s time to make sure you’re protected. Here are our top tips.
Understand how student loan services work
Many fraudsters rely on their victims having fundamental misunderstandings over how organizations and processes really work. This allows them to reinvent fake systems they can build a scam around while tricking people into thinking they’re participating in a legitimate process.
For instance, debt relief services never charge upfront fees for their services, and you never have to pay anyone to carry out administrative tasks related to student loans. Yet scammers will often claim you need to pay a fee to start a process or try to charge you for their services. Being asked for money is almost always a red flag.
Another thing to bear in mind is that if you want to sign up for a debt relief program or plan, you can do it directly from the Student Aid website. You don’t need to wait until Student Aid calls you (if they do, it should raise your eyebrows).
Finally, the Department of Education and affiliated organizations will never ask for your FSA password or username. Giving out this information grants someone access to your account, and your password is just as legally binding as a written signature.
Identify who someone really is
Scammers trick people into believing they’re legitimate by claiming to be someone they’re not. This is particularly effective for student loans since loans sometimes get transferred from one company to another, so borrowers aren’t always aware of who their servicer is. The Federal Trade Commission published a notice warning of scammers who pretend to be new loan servicers and asked borrowers to make automatic payments to their (non-existent) debt relief program.
However, you can verify the legitimacy of a loan service provider. The Federal Student Aid website publishes federal loan servicer updates on its site. You can also log into StudentAid.gov, call the Federal Student Aid Information Center, or find your servicer through the “My Loan Servicers” section on your account dashboard after logging on.
Also, familiarize yourself with legitimate organizations. There are only six loan servicing companies: Edfinancial, MOHELA, Aidvantage, Nelnet, ECSI, and Default Resolution Group.
Similarly, email addresses related to student loans will come from noreply@studentaid.gov, noreply@debtrelief.studentaid.gov, and ed.gov@public.govdelivery.com. Scammers may make emails that look similar at first glance but use “@gmail.com” or other addresses.
Be cautious of high-pressure tactics
Although scams can come in many shapes and sizes, they mostly rely on exploiting a few core principles of human psychology, such as creating a high-pressure environment.
This is particularly easy to achieve when it comes to topics people have a lot of anxiety around, such as their student loans. A call from your debt provider is likely to get your heart racing a lot more than a call from your supermarket.
However, this has a silver lining: It can make scammers easy to spot. If the person on the phone tries to create a sense of urgency by making it seem like you need to act right now to access help or avoid penalties, it’s extremely likely you’re dealing with a scam.
Safeguard your personal information
It’s difficult to know how you’ll react in the moment when presented with some of the scare tactics scammers use. But if there’s one thing you can be certain of, it’s the system you have in place to ensure you protect your personal information.
Activate two-factor authentication on all your online accounts, especially those for your student loan accounts. This will make it harder for any hackers to get into your account (and give you more time to start thinking clearly).
Make it a rule not to give out sensitive information like your Social Security Number unless you’re 110% of the other person’s identity. It’s best to hang up and call the person back through the official number — if you explain that you’re concerned about student loan scams, an employee of a legitimate organization won’t pressure you to stay on the line.
Seek professional support
If you’re in any doubt about whether you’re speaking to a genuine organization or you’re confused about how to access debt relief for your loan, it’s always a good idea to seek professional advice.
Your university’s financial aid office should be able to offer some guidance about loan forgiveness options and how to contact your real loan servicer.
Alternatively, you can talk to a financial advisor or a non-profit organization focused on financial counseling for advice about debt management and identity theft prevention.
Know the red flags
We’ve touched on a few warning signs already, but here are a couple more.
Student loan forgiveness programs always require you to meet specific criteria, and it can take years to qualify for full forgiveness. If somebody rings you claiming they can cancel your entire student loan debt overnight, it’s a scam.
On emails, look out for any spelling or grammar errors. How often have you noticed official governmental organizations or financial institutions using “their” instead of “there” or making other basic mistakes? It very rarely happens.
What to do if you fall victim to a student loan scam
They say that prevention is better than cure. But if you’ve just realized you’ve been scammed, you can still take action to minimize the harm.
Change passwords and let everyone know
The first thing you should do after falling prey to a scam is to alert your student loan servicer. Tell them you think you’ve been scammed, ask if any changes have been made, and change your password.
If the scammers asked for third-party authorization or power of attorney, you should also ask to revoke this.
Don’t forget to contact the bank or credit card company associated with your loan account too. Tell them what happened, change your passwords, and consider freezing your account.
Check your credit report
It may also be worth checking your credit history. Sometimes, a scammer uses the information they’ve obtained about you to open another account, and your credit history is the best place to find out.
You can check your credit report for free on AnnualCreditReport.com.
Report it
You can report fraud to the Federal Trade Commission (FTC), the Consumer Financial Protection Bureau, or even the attorney general of your state. The FTC can also give you advice on how to recover the money. Although this is never a guarantee, the sooner you take action, the better your chances.
If you suspect identity theft, you can contact the Office of Inspector General Fraud Hotline from the Department of Education or the Social Security Administration, and they may be able to offer you guidance to protect yourself. It’s also worth reaching out to credit bureaus (Equifax, Experian, and TransUnion) to remove any activity from the scammers from your file.
How to stay updated on the latest scams
In this article, we’ve covered the most popular student loan scams currently. But scammers can be annoyingly smart, and they’re always coming up with something new to catch you out. It’s therefore important to ensure you’re up to date with the latest techniques.
The Better Business Bureau (BBB) has a free Scam Tracker tool you can use to look up a scam if something feels wrong but doesn’t quite match the descriptions provided here. You can also use the tool to report scams you’ve been targeted in.
Staying up to date with official sources, like the Department of Education and your student loan servicer, will also mean you’re aware of scam alerts.
Finally, joining social media communities for student loans — such as student loans subreddits on Reddit — will likely expose you to new scams making the rounds.
Stay ahead, stay secure
With student loan scams surging, it’s never been more paramount to protect yourself. Recognize the red flags, know how to identify legitimate organizations, safeguard your personal information, and always be wary of high-pressure tactics.
As part of your bid to pay down your debt and keep in the loop with everything loans and finances, join the Frugal Student community. We’re committed to keeping you informed about must-know financial information, and we send out our tips in a handy newsletter.
