Better Business Bureau Tips: Beware of Debt Consolidation Offers

As the impact of COVID-19 on daily life has greatly diminished, student loan borrowers whose repayments have been suspended due to the pandemic may consider their options to resume making payments on this life-changing debt.

This may prompt some borrowers to look into debt consolidation — but it’s important to carefully evaluate these options and not give in to the temptation to seek a quick fix that could turn out to be a scam.

Federal student loan payments will remain interest-free through Dec. 31 under the latest action by the Biden administration. Additionally, borrowers earning less than $125,000 per year are eligible for up to $10,000 in loan forgiveness, while borrowers who also received Pell Grants are eligible for up to $20,000 in forgiveness. Consumers should be wary of scammers taking advantage of the news by offering bogus means of asking for credit forgiveness.

Better Business Bureau Scam Tracker received more than 500 reports of debt relief and credit repair scams in North America in 2021. These scams cost consumers more than $283,000 in total, with the average consumer losing $600. The most common of these reported scams involved direct debit payments.

Upfront payments, including fees for completing a repayment plan, are a common thread in debt relief scams. These advance payments are illegal. Loan repayment assistance — including loan deferral, forbearance, repayment, and forgiveness or release programs — is available directly through the Department of Education and loan servicers, and these programs are always free to apply for.

Some scam companies ask consumers to sign a financial decision power of attorney, use it to pay off the consumer’s loans – a way to temporarily stop or reduce payments while the loans continue to earn interest – and ask the consumer to make payments directly to them and not to the credit servicer. In reality, the company keeps the payments to itself and the deferral eventually expires with no progress in repayment.

Borrowers looking for student loan relief should consider the following tips:

• Research the company and the options available to you. BBB business profiles on debt consolidation and other businesses are available at BBB.org or by calling 888-996-3887. This includes customer complaints and how they are handled, customer ratings and a rating from A+ to F.

• Don’t prepay debt-repayment companies. If a charity asks for money before helping you, report it to BBB.

• Think twice before signing a power of attorney or giving a company your bank account information or login information for the Federal Student Aid website. These actions allow a company to make potentially devastating financial decisions for you.

• Don’t agree to any long-term forbearance or procrastination plan without doing your homework. These should only be viewed as temporary solutions.

• Don’t be fooled by promises of quick relief. The loan forgiveness and forgiveness options offered by the Department of Education still require years of payments, and these loans cannot be redeemed through bankruptcy.

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