Education Department Cracks Down on Student Debt Relief Companies


Education Department Cracks Down on Student Debt Relief Companies

Student borrowers are being targeted by debt relief companies promising help—for a price—for services that the government offers for free. Many borrowers, overwhelmed by the burden of paying back student loans, are tempted to sign on for their services.

But they shouldn’t. Two of those companies just got a smackdown from the Department of Education, which issued a cease-and-desist letter to Student Loan Project and Perfect Privacy, the operator of SL Programs Student Loan and Debt Consolidation. 

The Education Department charged the student debt relief companies with unauthorized use of its official seal on their websites and misrepresentation of their relationship. The Student Loan Project was also accused of implying it is affiliated with the government by using ".us" at the end of its web address.

The Education Department ordered the sites to stop using the official seal by February 4 and to put a disclaimer on their websites explaining that they are not affiliated with the department.

“Millions of Americans are struggling to manage their education debt and are vulnerable to being ripped off by shady debt relief companies charging exorbitant fees,” says Suzanne Martindale, staff attorney for Consumers Union, the policy and advocacy arm of Consumer Reports. “We’re encouraged that the department is cracking down on these misleading marketing schemes and hope they will continue to aggressively enforce the law to stop debt relief scams.”

‘We’ve Put These Companies On Notice’

In a video released this morning, Acting Secretary of the Department of Education John King said, ”We’ve put these companies on notice that they may not misrepresent their relationship with the department to trick students into paying for free services.”

Although the Education Department issued warnings about student debt relief companies last summer, today’s move is the first legal action it has taken. The Federal Trade Commission and the Consumer Financial Protection Bureau are also investigating possible deceptive practices in the student debt relief business.

Student debt relief companies charge for services that provide little or any benefit. They also push borrowers into monthly contracts. Some companies charge upfront consolidation fees as high as $ 999 or 1 percent of the loan balance. They also charge "enrollment" fees up to $ 600 or account “maintenance” fees as high as $ 50 per month, according to Department of Education research.

Students Shouldn’t Pay For Help That Is Free

The government’s message to students: Don’t be fooled. You never have to pay for help managing your federal student debt. You can visit the Department of Education’s Office of Federal Student Aid and the student loans section of its website if you need information on how to lower or cap your monthly loan payments, consolidate your federal loans, find out whether you qualify for loan forgiveness, and to get advice if your loan is in default.

If you think you’ve been scammed, contact your state’s department of consumer protection or attorney general. You can also file a complaint with the FTC or the CFPB.

Consumer Reports has no relationship with any advertisers on this website. Copyright © 2006-2016 Consumers Union of U.S.

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