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Cheated by student loan 'debt relief' firm? What to do

John Belushi wreaks havoc in the Warner Brothers film, "Animal House"
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John Belushi wreaks havoc in the Warner Brothers film, "Animal House"

Dozens of companies charge high fees and claim to help borrowers reduce or eliminate student loan debt. You may be dealing with one, but you're not stuck. You can end contact with such companies and apply to federal student loan programs for free through U.S. Department of Education websites.

While not all companies that collect fees in exchange for student loan help are scams, more than 130 businesses have histories that give consumers reason to be wary, a NerdWallet public records investigation found. Those track records include penalties, investigations, lawsuits from federal and state authorities, private lawsuits and poor ratings from the Better Business Bureau.

Unsure if you're dealing with a fraudulent student loan company? The NerdWallet Student Loan Watch List is a good place to start. Here's what to do if you're involved with a misleading student loan relief company.

1. Sever your connection with the company

Call the company to request a refund and cancel your contract, if you signed one. If you've set up automatic payments, alert your bank or credit card issuer that you no longer authorize charges from the "debt relief" company.

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The company may not respond or cooperate with your request to cancel. You can stop making payments anyway, says Persis Yu, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center.

"Given that these companies exist on the fringe of legitimacy," Yu says, "I think borrowers should feel OK to stop making payments."

However, there's an "outside possibility" that the company could sue you for breach of contract or send your bill to collections, she adds.

Once you've cut off contact with the company, monitor your personal and financial information for a while afterward, says Suzanne Martindale, a staff attorney at Consumers Union. Make sure that you're no longer being charged and that negative marks don't appear on your credit report.

2. Contact your lender or servicer

Call your servicer or lender and explain that you've paid a third-party company for student loan assistance.

If you don't know who your servicer is, log into the Federal Student Aid website to check. Your loans are likely private if you don't see them listed on the government's website, but they will appear on your credit report. If you have more than one loan, you may have accounts at multiple servicing companies.

If the agent from the loan servicing company you speak with isn't helpful, ask to talk with their manager, says Robyn Smith, an attorney who works with Yu at the NCLC and also at the Legal Aid Foundation of Los Angeles.

"Take it as high as you can," Smith says.

3. Regain control of your student loan account

If you've given the "debt relief" company access to your student loan account through a power of attorney form, revoke that agreement. To do so, contact your lender or servicer in writing and send a copy of the letter to the debt relief company.

Smith suggests saying something in the letter to the servicer like, "I am notifying you that I am revoking the attached consent. As of today, please stop all communications regarding my account with [the debt relief company's name]."

You may need to get the statement notarized if your servicer requires it, Yu adds. Even if it doesn't require it, notarizing the statement will help it carry more weight. Make copies of the statement and save them for your records.

Once you regain control of your student loan account, resume making loan payments to your federal loan servicer or lender if you stopped.

4. Learn what you can do for free

Despite what it might claim, there's nothing a student "debt relief" company can do that you can't do for free through the Department of Education or your federal loan servicer. That includes:

Also, you can refinance your student loans through a private company if you have good credit and enough income to comfortably afford payments. However, in doing so you'll give up access to the federal loan programs listed above.

5. Seek legitimate help if necessary

If you're looking for a professional with whom to discuss your student loan situation, a certified student loan counselor trained by the National Foundation for Credit Counseling is a safe option. These advisors work for nonprofit credit counseling agencies and provide one-on-one services for free or nominal costs. You can locate a counselor on the NFCC's student loan help website.

For more complicated problems, such as navigating default or dealing with collectors, it may be smart to contact a student loan lawyer. Some legal aid nonprofits have expertise in student loan issues and can assist you for free or at a reduced rate. Search for your local organization and ask if it or another organization can help.

6. File complaints to federal and state agencies

It may feel like shouting into a void, but filing complaints is a crucial step. Government officials base their investigations of fraudulent companies on consumer complaints. Filing one also increases chances of getting your money back. Washington state's attorney general has returned more than $1.2 million to residents of the state since November 2015. Attorneys general in Illinois and other states have acted on leads from consumers to take down scams.

Submit your complaints to the BBB and all of the following federal agencies, because for the most part, government enforcement of student debt relief companies isn't coordinated.

Finally, consider contacting members of Congress to tell your story. Staff members in charge of constituent services may be able to help.

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This article originally appeared on NerdWallet.