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.
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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."
You don't need to pay for help
Though there's nothing illegal or inherently abusive about charging for a service that's available for free, consumer advocates are concerned that people aren't being told about all their options.
"We know people are having trouble with their student loans, and we know it can sometimes be hard to navigate the government system," Loonin said, but "that should not be an open door to ripping people off."
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"It's troubling when financially distressed borrowers are targeted and encouraged to pay for help that they could get for free," said Lauren Asher, president of the Institute for College Access and Success.
Borrowers with federal student loans can enroll in alternative repayment programs, such as Income-Based Repayment, that may help them get a more affordable plan based on a percentage of their income. There are also options for getting out of default.
"You do not need to pay someone to help you with your student loan, you can enroll yourself," said Rohit Chopra, student loan ombudsman at the Consumer Financial Protection Bureau (CFPB). "Many people believe that if they pay someone to negotiate on their behalf they can get a better deal. Debit relief companies do not have the ability to obtain a 'special deal' under these federal student loan programs."
The CFPB's online tool for federal loans, Repay Student Debt, lets you find the best option for handling your specific situation, even if you are already in default.
The Student Loan Alliance, a nonprofit organization representing the nine largest consumer credit counseling services across the country, recently launched StudentLoanHelp.org. The site enables you to speak one-on-one with a trained student loan counselor for free.
SLA President Larry Gilmore said the site is designed to provide "objective education and counseling" to help struggling borrowers find the best repayment option. The counselors will look at all of your debt, including credit card, mortgage and other loans.