BREAKING NEWS: ED Takes Action Against Third-Party Debt Relief Scams

By Allie Bidwell, Communications Staff

The Department of Education (ED) on Thursday sent cease and desist letters to two third-party debt relief companies that were using ED’s official seal without authorization.

The letters claim the two companies –– Perfect Privacy, LLC, based in Atlanta, and The Student Loan Project, based in San Diego, CA –– misrepresented their relationship with the federal agency, implying that ED was affiliated with their services.

Such debt relief companies have come under increasing scrutiny recently for charging student loan borrowers high fees for services they can receive for free through the federal government, such as loan consolidation. Some companies contact borrowers through television ads, social media, and even directly through the mail, creating a sense of urgency for borrowers to contact them. As early as 2013, the National Consumer Law Center began identifying problems with debt relief companies’ marketing methods.

State authorities have also been cracking down on the potentially illegal activities. State attorneys general in Illinois, Florida, and Minnesota have taken legal action against debt relief companies they said misled borrowers about their services.

"We commend the U.S. Department of Education for taking steps to protect student loan borrowers from deceptive practices," said NASFAA President Justin Draeger. "No student loan borrower should be lured into paying for federal benefits to which they are already entitled."

Under Secretary Ted Mitchell wrote in a blog post on Friday that borrowers can find ways to lower their monthly payments, consolidate their loans, get information about loan forgiveness, and get help rehabilitating their loans for free. He noted that ads claiming that "Obama Wants to Forgive Your Student Loans!" or similar messaging are misleading and often take borrowers to companies that make a profit off of these services.

Mitchell went on to write that ED’s research has found some debt relief companies charge hundreds of dollars –– with fees as high as $999 –– for loan consolidation, "subscription" or "enrollment" fees of up to $600, and monthly "maintenance" fees for services that are already available for free.

"Unfortunately, some companies act unethically or illegally to get your business – misrepresenting themselves as having a relationship with the Department of Education by using our logos, violating students’ privacy by inappropriately using their FSA IDs, and claiming that government programs are their own," Mitchell wrote. "We are taking action to crackdown on these companies and continuing our efforts to protect student borrowers."

 

Publication Date: 1/29/2016


David S | 1/29/2016 11:40:23 AM

Very good news, but it feels like 2 down, 1000 more to go. In what seems like the ultimate irony, I've actually gotten robocalls at my desk - my Financial Aid Director desk - from these scam artists who promise to save you thousands of dollars. One time I decided to press 1 to talk to a representative, and suffice to say when I identified what it was I did for a living and how I was eager to alert our students about these scams, the next thing I heard was a dial tone.

Good job by the Department, but they have to realize that for all programs, there are people out there who are going to try to find a way to make a buck off it, and they need to be proactive to stop them...Congress too.

Lori V | 1/29/2016 11:30:31 AM

Thank goodness!

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