Nearly 7 million Americans have fallen behind on their student loans, and millions more are barely able to make their payments each month. A new industry has sprung up that offers to help deal with such debt, and that has consumer advocates concerned.
"Are you struggling with student loan debt?" the commercials ask. "Call right now for immediate relief."
A myriad of companies now offer to help reduce or even eliminate debt from government-backed student loans (for a price, of course). They make it sound fast and easy. Relief, they promise, is guaranteed.
"I'm troubled by this," said Terrence Banks, a student loan counselor at ClearPoint Credit Counseling Solutions, a nonprofit counseling agency. "They prey on people's emotions to get them to call. They promise relief, but they can make your situation worse."
Here's what these ads don't tell you: The help they promise almost always comes from federal programs that you can access yourself for free.
(Read more: Thinking of co-signing a college loan? Think again)
The National Consumer Law Center recently studied the growing student loan debt relief industry and how some companies are taking advantage of desperate borrowers. Their investigation included secret shopper calls, an analysis of material available on company websites, a review of the actual contracts used and a look at online complaints.
The NCLC's report, Searching for Relief, details many problems uncovered by the investigators. Here are some of the highlights:
- Providing inaccurate information: These companies sell themselves as experts who know how to navigate the system, but NCLC found "a shocking number of inaccuracies" about consolidation, garnishment, rehabilitation, bankruptcy and other critical topics.
- Failing to disclose price: NCLC looked at 10 websites, and none listed the price. Secret shoppers called 20 companies and had a difficult time finding out about fees. "They were very, very secretive about what they are charging," staff attorney Deanne Loonin said. "Most don't want to talk about it, and that's a huge warning sign." NCLC found that initial set-up fees can be as much as $1,600. There can also be monthly fees of $20 to $50.
- Selling a one-size-fits-all approach: Student loan debt relief companies often claim to provide a range of services, but most offer only loan consolidation. While this is valuable in some cases, it may not be appropriate or available in others. There is only one federal student loan consolidation program. So, as the NCLC report points out, any company that sells debt consolidation "cannot possibly be tailoring the product to individual needs or searching among multiple products."