Telephone agents often falsely claimed the company was affiliated with the U.S. Department of Education, the lawsuit alleges.
Read MoreStudent debt 'help' often predatory, officials say
Student loan debt is a serious and growing problem in this country. The Consumer Financial Protection Bureau (CFPB) estimates that outstanding student loan debt is approaching $1.2 trillion. About seven million student loan borrowers are now in default.
Last year, the National Consumer Law Center (NCLC), a nonprofit advocacy group, studied the student loan debt relief industry. NCLC investigators visited websites, made secret shopper calls, examined contracts and reviewed online complaints.
"There's a whole range of misrepresentations," said staff attorney Deanne Loonin. "They either make up a program that doesn't exist, or they describe a government program and make it sound like it's their own or claim to have some special way to access it for you."
In its report, "Searching for Relief," the NCLC found numerous problems, including: charging for services that are available for free; failure to disclose fees online or when initially requested; and providing inaccurate information about crucial topics such as consolidation loans and garnishment.
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Most of these companies claimed to offer a broad range of services, but NCLC's secret shoppers didn't find that. "They're not a counseling service, and they don't usually go through all the options available," Loonin told CNBC.
"They're usually selling loan consolidation, so they are going to steer you in that direction, no matter what." Loan consolidation is a good option for some people, but it doesn't work for everybody and may not be available to all borrowers, Loonin said.
NCLC's mystery shoppers also found that some companies charge a monthly fee that ranges from $20-$50 on top of the steep upfront payment. The report calls these fees "particularly suspect" since it's unclear what service, if any, the customer is buying on a monthly basis.