PhotoThe Federal Trade Commission and eleven state attorneys general are launching a coordinated attack on student loan debt relief services, alleging they have fraudulently collected roughly $95 million in fees.

“Winter is coming for debt relief scams that prey on hardworking Americans struggling to pay back their student loans,” said Maureen K. Ohlhausen, FTC Acting Chairman. “The FTC is proud to work with state partners to protect consumers from these scams, help them learn how to spot a scam, and let them know where to go for legitimate help.”

Florida Attorney General Pam Bondi has filed two of 36 total lawsuits, charging two Florida-based companies misled student loan borrowers into believing they would be enrolled in a loan forgiveness program, making unkept promises.

She says the students would have been much better off using the money they paid in upfront fees to make payments on their loan balances. Illinois Attorney General Lisa Madigan also filed two separate actions against firms in her state.

Borrowers not getting the right information

“Student loan debt relief scams are successful because borrowers are not receiving the information they need to repay their loans,” Madigan said. “They rob borrowers of the money they could be using to pay down their student loan debt.”

With approximately 42 million borrowers owing more than $1.4 trillion in student loans, some firms have targeted this debt-burdened group with promises of relief. Similar scams targeted homeowners facing foreclosure following the 2008 housing market crash

Consumers were charged upfront fees and, in many cases, ended up in worse shape than before.

While the government has established some ways for student loan debt to be forgiven, borrowers should understand that it is very difficult to walk away from a student loan. This debt is so iron-clad it cannot even be discharged in bankruptcy.

Don't fall for big promises

Madigan says student loan borrowers should not believe sales pitches that claim to have expertise in navigating the debt relief process. Some of these firms have names that make them sound like a government agency when they clearly are not.

These companies often employ high-pressure sales tactics, providing erroneous information in order to scare borrowers into signing up. People who do sign up are often charged upfront fees as much as $700.

The service they provide is available to any consumer at no charge if they contact government agencies like the Department of Education and the Consumer Financial Protection Bureau (CFPB).

Under federal law, there are a few cases in which a student loan may be forgiven, such as when a for-profit school goes out of business or the borrower takes certain public service jobs. The Department of Education lists them here.

A growing number of employers now offer some help in repaying student loan debt as an employee benefit. Earlier this year, outplacement firm Challenger, Gray & Christmas reported nearly 73 percent of the firms it surveyed either currently offer or plan to offer a student loan assistance package.


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