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Department of Education Warns Students of Debt Relief Scams

Posted By:  |  August 27, 2015  |  0 Comment(s)

United States Secretary of Education Arne Duncan spoke out on YouTube warning student borrowers to be wary of marketers selling services sounding too good to be true.

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During a CNN interview on Thursday Duncan said he is truly inspired when he steps foot on the dozens of community college campuses he has visited around the country. He deems students of these community colleges as inspirational due to their efforts to gain the skills and trades needed to become part of a middle class America. He claims to fully support the partnerships between these educational establishments and local industry as many are becoming “regional economic engines,” driving economic activity by creating jobs within those communities.

On a YouTube video Duncan addresses borrowers to be wary of debt-relief companies who are targeting borrowers within these community colleges with mailings or social media ads often featuring a brand making them appear to be affiliated with the Department of Education. These lending companies claim to provide borrowers with debt relief options, offering consolidation and lower monthly payments at an exorbitant fee. The Department of Education wants student borrowers to be aware they offer the same services for free.

“Please remember if they’re saying they can cancel your loans or reduce your loans, but only for a cost, that is never the case. You can always work directly with us and that should always be free,” said Duncan.

Rohit Chopra, former student financial services regulator of the Consumer Financial Protection Bureau, has mentioned these new repayment companies are luring in desperate and vulnerable borrowers as they only fine print information concerning the governments free programs for manageable payment options.

Multiple attorneys general and the Consumer Financial Protection Bureau have filed lawsuits against a number of these companies with accusations of “deceptive marketing” and “charging illegal fees.”

Poll

  • How important is it to you for a debt consolidation company to offer financial education resources?
  • Takes your existing debt and try to settle with your creditors for a lower amount. If you pay off the settled amount, your debt will be considered paid in full.
  • Negotiates with your creditors on your behalf.
  • Fee based on a percentage of your total starting debt or a percentage of the debt they save you.
  • Most settlement companies have you create a separate "escrow" account where you will make monthly contributions over a certain amount of time to contribute to your settlement. Once there is a substantial amount of funds to show your creditors, the settlement company will try to negotiate a lower amount of debt.
  • Combines all your debts and creditors into one monthly payment.
  • Allows you to pay one monthly payment to the consolidation company, instead of multiple payments to different creditors.
  • You no longer owe your original creditors; instead you pay one monthly payment to your consolidation company.
  • Consolidation companies can help negotiate lower interest rates on your debts and help lower your total debt payment in the long run. A lower interest rate will lower the amount you owe in the end.
  • Allows you to consolidate all your different debts into one personal loan that can be paid off over time.
  • Can offer borrowers a lower interest rate with a longer payback term (compared to high-interest credit cards or medical bills). This will lower the amount of money required to pay off the loan over time.
  • Personal loan debt consolidation can be an effective way to raise your credit score quickly (within 3-6 months).
  • Borrowers can receive funds from their loan within only a few days.

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