Common Student Loan Scams: Obama Student Loan Forgiveness, Money Up-Front & Other Tricks

There are billions of dollars tied up in student loans, and unethical companies know it.

As public outcry has mounted over the high cost of a college education and the severe student-loan debt crisis we’re facing, borrowers are searching for ways to reduce or eliminate their student loan payments.

Two of those ways are through legitimate means: talking with your loan servicer (the company who handles your monthly payments) or taking advantage of loan forgiveness plans offered by the federal government.

Outside of these two solutions, there are few legitimate ways to reduce your monthly payments or get your loans forgiven or discharged by the government.

However, that hasn’t stopped illegitimate companies from promising students lowere payments and better rates, only to rip off their unknowing (and already financially unstable) customers.

CBS This Morning did an excellent segment on this very issue in June 2015, pointing out what we mentioned earlier: When scam artists and financially desperate people meet, the results are never good.

When scam artists and financially desperate people meet, the results are never good.

In the video, CNBC commentator Michael Santoli said, “You have so many people with so much debt outstanding and they’re looking for a way to manage it, a shortcut, maybe some relief it and whenever you have that sense of urgency, you have a lot of private companies that want to take advantage of that.”

We’ve seen this happen time and again in all sorts of industries, not just student loans. Cosmetics, tax help, investment opportunities and tourist-centric cities – each arena has its own collection of shady characters.

When it comes to student loans, though, there are some telltale signs that the “legitimate” company offering you amazing monthly payments or, in some cases, complete loan forgiveness, is trying to rip you off.

They Promise to Lower Your Student Loan Payments, but First You Must Pay the Up-Front Fees

One of the classic tricks scammers like to use in financial-related schemes is the up-front payment. For example, in our article about turning bad credit into good credit, we discovered that companies saying they can repair your credit are not allowed to ask you for any fees until their work is complete. That’s a pretty fair deal – you don’t pay a dime until the work is done.

Not only does that protect you from scammers taking your money and running, it also helps you filter out the shady companies along the way. If you know that asking for up-front fees to repair your credit is illegal, then you also know that anyone who is asking you for up-front fees is probably not a legit company.

While the same laws don’t exist specifically for student loans, the principles of up-front fees still apply.

A Boston-area CBS news affiliate investigated two cases in their area in which borrowers were scammed by companies promising to lower student loan payments. Their method? Demanding up-front fees for services that they had yet to provide.

In both cases, the borrowers paid up front – one to the tune of about $1,500 – only to find out that none of their payments had changed and the companies who were supposed to help them were just taking their money.

Remember how we mentioned that student loan scams are similar to credit repair scams? The solution for both is to realize that there’s nothing loan forgiveness or loan discharge companies can do for you that you can’t do for yourself.

There’s nothing student loan forgiveness companies can do for you that you can’t do for yourself.
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The government’s Student Aid website gives a pretty clear explanation of how you can get your loans discharged and what programs are available for loan forgiveness. Also, you can talk with your loan service providers about the various options you have. These two resources can give you all the advice you need to make a wise choice, and you won’t have to pay a single dime for it.

Up-front fees are a classic tactic that many financial/student-loan sites have brought up:

  • Student Loan Hero: “Legitimate student loan relief businesses must not charge fees until there is a successful settlement or service and the borrower has made a payment towards their newly negotiated plan.”  

  • The Federal Trade Commission: “If you pay up-front to reduce or get rid of your student loan debt, you might not get any help — or your money back.”

  • Nerd Wallet: “As soon as a customer service representative tells you you’ll be charged to consolidate your loans, to qualify for lower monthly payments or to have them forgiven, hang up and go to instead. 

  • “Many student loan debt relief companies charge a fee to provide services that you can take care of yourself by contacting your loan servicer.” 

They Promise to Get Your Loans Forgiven

Over the past 15 years, the federal government has implemented several different types of loan forgiveness plans. In fact, we have a pretty in-depth article about how to get your loans forgiven or discharged.

And guess what? There are only a limited number of solutions, all of which you can do yourself through conversations with your loan servicer or the government’s Student Aid department.

The good news here is that you can check over the list yourself to see which loans are eligible for forgiveness and which ones aren’t. We’ll save you the time and give you a brief overview here:

  • Forgiveness through 20 or 25 years of payments through an income-driven repayment plan

  • Forgiveness through the Public Service Loan Forgiveness program (working for certain nonprofits)

  • Discharge through bankruptcy, provided you meet the three requirements of the Brunner Test (you can’t maintain a suitable standard of living because of your payments, your situation is permanent and you’ve already made payments).

So, if a company contacts you (or you call them) and they say they can get your loans forgiven, run the other way! The reality is that you either have to go through bankruptcy, work at a specific type of nonprofit job, full-time, for 10 years or you have to make at least 20 years of payments under certain plans.

If a company contacts you & says they can get your student loans forgiven, run the other way!
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Loan forgiveness is not the quick fix some scammers would like you to believe it is; it takes years.

As the FTC says, “No one can promise total loan forgiveness. Before they know the details of your situation, scammers might say they can get rid of your loans through a loan forgiveness program — programs most people won’t qualify for — or that they will wipe out your loans by disputing them.”

Loan “disputes” are similar to how you can file disputes about your credit report. If you see information on your loan that’s inaccurate (they’re in default even though you’ve made payments on time, or they show late payments that don’t exist), you can gather up the information proving your case and send it to your loan servicer.

If you feel like there may be errors on your loan or in the rare chance you’re being asked to pay loans that aren’t in your name, head to the Student Aid department’s dispute site for advice on how to deal with the discrepancies.

A Real-Life Example of How Companies are Preying on Desperate Students

One classic example of a scammy website is Their site emphasizes the “Obama Student Loan Forgiveness” program, which they say is the common name for the federal government’s direct loan program. That is not the program’s nickname, but the site uses that name to make you think that loan forgiveness is readily available.

The website urges you to contact them for a quote, which means they want you to pay them to do something you can do yourself.

We wanted to know exactly what they were charging for their services, so we gave them a call….twice. Both times we were greeted by a voice thanking us for calling Campus Debt Solutions. This was the first red flag…the website we visited wasn’t actually the company’s site, it was basically a landing page meant to get us to call their offices.

The first time we called Campus Debt Solutions we ended up hearing a conversation with what sounded like a marketing or ad department at the business. We could hear two men talking, but it didn’t seem like they knew we were listening in.

The accidental eavesdropping revealed that the company puts out radio spots during off hours to get people to call in.  Most callers hang up, a voice said, “but once we have their number, we can call them back.”

Our advice: Don’t call these companies based on a radio ad; you’re almost guaranteed to get at least one call back.

During our second conversation, we reached a representative named Laura. We were surprised by two things: how honest she actually was about repayment plans, and how expensive their services were.

Lauren told us about the various repayment plans and how some of them can result in loan forgiveness. But, she said, it takes 20 to 25 years. Her advice in this area was spot-on. Income-driven repayment plans like Revised Pay As Your Earn, Pay As You Earn and Income-Based all have the possibility for loan forgiveness at the end of 20 or 25 years.

They Wanted Money Up-front

When we inquired about how much it would cost for them to get us enrolled in one of the plans, Lauren was more than happy to tell us that: 

  • The initial fee would be a series of three payments of $275, paid monthly.
  • To recertify our payment plan every year, we’d pay $20 a month.

What does that look like over the course of 20 years? The monthly payments alone would cost you $4,800, and when you add the initial $825 fee, you’re looking at a total cost of $5,625 for something you can do in a couple of hours, on your own, with about 30 minutes of paperwork each year to recertify.

They Buy Out Your Loans & Risk Your Security

But that’s just part of the ugliness of what these companies are pushing on borrowers. Not only do they charge you a crazy amount of money, but they also buy out your loans, consolidate them and ask that you provide them with your social security number, and in some cases, the challenge (security) questions you’ve set up on your Student Aid online account.

That’s a huge red flag for us. Never, ever sign up with a company who says they need your social and your security questions to help you. On top of that, they’re buying out your loan and consolidating it. We didn’t have the chance to ask Lauren if “buying out” meant the rights to service your loan or the actual dollar amount of your loan.

Either way, we see this as another huge red flag because Campus Debt Solutions is essentially taking control of your accounts, but they don’t frame it like that. In fact, they mentioned it in passing and we had to ask Lauren to go back to that point and tell us more.

If you’ve talked with any organization that’s asking or offering anything similar to Campus Debt Solutions, run away as fast as you can. And when you call, use a service like Google Hangouts. Calling with your cell phone is like asking the company to call you back.

One more tip: Campus Debt Solutions is part of a network of affiliates who will call you if you provide your personal information on Those affiliates could call you about your loans, but also about credit card debt and other types of debt. The site also says you “may receive these calls” even if you’re on the federal Do Not Call list.

Wrapping It Up: Run the Other Way If You Think Something Is Off

Despite what the shady student loan “relief” companies try to tell you, federal student loan forgiveness is available only through very specific, income-driven repayment plans offered by the government. Students have the freedom to talk with a federal student aid representative or someone from their loan servicer in order to set up their repayment plans and learn about loan forgiveness.

If a company is asking you to pay up front, you know you’ve found a scammy company. And it’s not just scammy in the sense that they could take your money and run…it could be that they’re charging you thousands of dollars for simple work you can do yourself.

Also, if the company you’re talking with tells you they can get your loans forgiven, it’s probably best you look somewhere else. No company can guarantee loan forgiveness until they know your income, family size, how much you have in loans and when you got those loans.

As Campus Debt Solutions revealed, in order to get to the point of paying them, you’ll have to give them your social security number and, in some cases, the security questions for your account. Like we said earlier, this is a huge red flag. Don’t give your personal information to a company like this.

Our main suggestion in light of all this information is that you do the work on your own to sign up for the right repayment plan. In most cases, you can call your loan servicer(s) and talk to them about which repayment plans you are eligible for.

You might remember that early on we compared student loan repayment scams to credit repair scams. Our motivation in that comparison was to show you that the common-sense financial wisdom that works in credit and other areas of personal finance works with student loan relief companies, too.

So, take a moment to read through some of our articles about being a smart consumer. The lessons you learn in these articles will help you spot people or companies trying to prey on you:

J.R. Duren

J.R. Duren is a personal finance reporter who examines credit cards, credit scores, and various bank products. J.R. is a three-time winner at the Florida Press Club’s Excellence in Journalism contest. He is a member of the Society of Professional Journalists and his insight has been featured on Investopedia, GOBankingRates, H&R Block and Huffington Post.

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