As third-party companies promise customers easy fixes to their student debt problems, the Department of Education (ED) continues its efforts to educate borrowers about ways to manage their debt without having to pay for services that the government offers for free.
While ED does not have data on how frequently third-party companies contact borrowers or how often borrowers are using these services, in most cases ED officials are told that the contact between the two is unsolicited. When ED or Federal Student Aid (FSA) are contacted about such companies, usually through the FSA Ombudsman’s office, individuals are most often inquiring as to the legitimacy of services or reporting them to be “scams,” according to the Department. Less frequently, borrowers who contact ED or FSA have already signed a contract or paid a fee to a company for services like loan consolidation or enrollment in income-based repayment (IBR).
For those who are simply inquiring about a company, ED is able to advise them that the assistance offered by the company is also offered by their ED-contracted student loan servicers for free. ED also directs borrowers to information available online at studentloans.gov, studentaid.gov, or myeddebt.com.
But what if a borrower has already signed a contract with one of these third parties or paid a fee for these services? In those cases, ED refers them to the Federal Trade Commission (FTC) or Consumer Financial Protection Bureau (CFPB) where they can lodge a formal complaint about a deceptive trade practice or scam. Borrowers are also advised that legal assistance might be an option if they are unable to resolve the issue through other means, either by receiving back the fees they paid or other forms of legal resolution.
While most of these companies are not doing anything illegal, representatives from ED told NASFAA that their practices are often misleading at best, and outright incorrect at worst.
“Some companies have gotten really good at walking that fine line, while it appears some have, frankly, stepped over it,” said Katherine Sydor, a senior policy advisor at ED.
For example, paper mailings from such companies often have a similar look to official government correspondence and include buzzwords that borrowers would recognize as being used by ED, such as “loan forgiveness” or “student debt discharge.” In other cases, the correspondence will include the recipient’s loan balance or a number within the ballpark of what they owe, information that can be purchased by the company from a private data collection company. One of the more misleading tactics is to promise borrowers things like eligibility for IBR or certain outcomes if they pay for the company’s service. In stark contrast, ED officials avoid offering blanket guarantees regarding repayment eligibility
“ED has to be very careful when we talk about eligibility for these programs,” but third-party companies might not “adhere strictly to the actual rules, regulations, and laws of the programs like ED,” Sydor said. “This may be part of the reason why they are so successful at luring some people.”
ED is working to reduce the number of students and former students turning to third-parties by educating borrowers about ways they can manage their debt on their own by working with their loan servicers and protecting their private information. For example, loan servicers have been asked by ED to post information on IBR and other assistance programs on their websites. The Department in July acquired the rights to FAFSA.com, which was previously a fee-based service owned by the company Student Financial Aid Services, Inc. to complete the free federal aid application. The move was intended to reduce confusion among students and parents about whether they were using a federal website or a commercial one. Also in July, ED issued an Electronic Announcement reminding users that the FAFSA ID should be kept private and only used by the person who owns the ID.
But even though ED and its enforcement partners like CFPB have tried to be proactive on this issue, some groups argue that there is more that can be done.
A spokesperson for the American Federation of Teachers said that even though some third-party companies post information about not needing to pay for enrollment in programs like IBR and public service loan forgiveness on their sites, oftentimes that information is not put in a prominent place.
“This information is more difficult to find than it ought to be and the only people who have talked to [borrowers] about student loans are the companies, not the servicers for the Department,” the spokesperson said. “I feel like they’re kind of stepping into a gap that I am surprised exists.”
AFT has suggested a few things ED could do to address the issue, such as trademarking certain phrases and program names like Pell Grant and Public Service Loan Forgiveness, which would prevent companies from using ED’s language to make them seem more legitimate than they are. The group also is supportive of a piece of President Barack Obama’s Student Aid Bill of Rights that would create a single service portal for student loan servicers and information.
NASFAA’s Student Loan Servicing Task Force report included several proposals related to this issue, including developing a central student loan portal and removing servicer branding from communications to students and replacing it with ED branding and logos.
Publication Date: 9/18/2015