Almost everyone knows about these common financial scams. Another potential fraud scheme to add to the list is student-loan debt-relief services. These companies claim to help individuals navigate the "complicated" process of consolidating their student debt, which may or may not be the best choice for every borrower but which is, in fact, a relatively easy and free thing to do on your own. Chronicle intern Dan Bauman called four of these student loan consolidation companies and wrote an article fact-checking the information in their sales pitch.
Here are some red flags that he reported:
- The companies claim to work closely with or be tied to the Department of Education. In reality, the Department of Education does not officially sponsor or partner with any of these companies. In fact, they offer their own simple and free process through their website.
- The representatives at these companies liken themselves to tax preparers, such as those at H&R Block, helping customers navigate through a complex process in order to avoid costly and time-consuming errors. In reality, those interested in consolidating their student loan debt can fill out a simple three-page application and send it in to a government servicer to see if they qualify. And if any errors are made, all you have to do is reapply the next day.
- The companies use the prospect of loan forgiveness to entice customers. In reality, not many people qualify for public-service loan forgiveness, but if you do, you can fill out the two-page application for free.
It is important for borrowers to carefully consider the pros and cons of student loan debt consolidation. While consolidation can simplify and sometimes lower your monthly payments, it can result in the loss of some benefits or end up costing more over the long term.
The bottom line is that student-loan debt relief companies charge huge fees for a service that is free and easy through the government.
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