As the coronavirus outbreak continues to impose new financial realities on consumers, it also subjects student loan borrowers to uncertainty in their repayment plans, which could make them more susceptible to scams stemming from the outbreak.
While President Donald Trump signed a third COVID-19 relief package, H.R. 748 (116), providing financial relief to student borrowers — the law, among other provisions, suspends payments and interest accrual on federally-held student loans until Sept. 30, 2020 — there is still the possibility of debt relief scams proliferating as the administration and Congress consider additional relief efforts.
“I think that the national level of the crisis may cause some wrongdoers to violate the law and we are on the lookout for that,” said Michelle Grajales, an attorney from the Federal Trade Commission (FTC) Bureau of Consumer Protection.
Student debt relief scams are not a new phenomenon. Third-party companies have promised customers easy fixes to their student debt problems for years and the Department of Education (ED) has continued in its efforts to educate borrowers on avoiding such schemes. Yet these deceptive practices and consumer fees have continued to plague borrowers, many of whom are eligible to enroll in income-driven repayment plans or consolidate their loans for free.
On March 29, FTC released a data visualization tool highlighting a jump in coronavirus-related complaints from consumers, which over the first four publications showed a significant increase in complaints concerning student loans.
From January 1 through March 29 of this year there had not been a single report concerning student loan debt or lending related to the coronavirus, but by April 1 the agency reported 36 and 186 respective complaints.
While the report is a summary of complaints, which include “do not call” reports related to credit card and mortgage scams in addition to student loans, the spike in reports within the past four days is noteworthy.
Grajales said the category could be more “expansive” than just student loan debt. “But it does at least suggest to me that we are getting COVID-19 complaints in this area.”
As the health crisis continues to unfold and impact a variety of economic sectors, FTC is preparing for scammers to try to take advantage of financial uncertainties.
“Stay tuned, because this is evolving obviously and our response to it is [that] we are already on it, but our responses of course are evolving as well,” Grajales said.
In the meantime, FTC along with the Consumer Financial Protection Bureau (CFPB) have put out guidelines for borrowers to be aware of potential scams.
In a blog post Kristen Evans, section chief for students and young consumers at CFPB, outlined the ways in which student loan borrowers can protect themselves in the wake of COVID-19.
“Student loan borrowers now have more benefits to consider when planning for the potential financial impact from coronavirus,” Evans writes.
Specifically the post highlights how to avoid potential scams and says that borrowers do not need to pay someone to assist them with their student loans.
“You should also be aware of these warning signs to help you avoid student loan debt relief scams. The advisory also has information on getting help if you are a victim of a scam,” Evans writes.
Grajales said that some of the best ways to avoid coronavirus scams are for borrowers to hang up on robocalls and ignore any online offers.
“In the student loan debt relief area, we routinely tell people not to give out their FSA pin, not to pay up front for debt relief services, which is something that's prohibited by one of the rules we enforce, the Telemarketing Sales Rule,” she added.
Like natural disasters, COVID-19 creates economic uncertainty for consumers and serves as a prime opportunity for bad actors to take advantage of borrowers.
“Can I say right now sitting here we are going to have as many or the same types of complaints that we did during the financial crisis or a natural disaster? I don’t have a crystal ball to predict that,” Grajales said. “It is our goal to be responsive to what the public is experiencing.”
Publication Date: 4/3/2020