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Student loan forgiveness scam promises to cancel debt

Student loan forgiveness scam promises to cancel debt


Student loan forgiveness scam promises to cancel debt


Get a robocall lately from Jonathon or someone else saying that your student loans have been flagged for a student loan forgiveness program? 

“If you owe more than $10,000 and are not currently enrolled in school, you could qualify for a reduced monthly payment and a large portion of your balance to be forgiven,” one caller said. 

“To redeem your spot in the program, it’s important that you call me quickly.” 

Nicole Cross, 43, heard a similar pitch last year that promised student loan debt relief. But instead of saving any money, she lost $750 in fees and saw no relief when it came to owing more than $70,000 in student loans. 

Cross, who lives in St. Clair Shores, Mich., said she has one bit of advice for people who are stressed out about their student loan debt and end up talking with someone offering student loan forgiveness.

“The minute they say $250,” she said, “hang up the phone.” 

Cross said she was asked to pay $250 a month for three months last October, November and December as part of an agreement with National Student Loan Alliance, which is run by Gotham and is based in Brooklyn, New York. 

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Cross ended up paying money to a company with a name that sounded official, even similar to the National Student Loan Data System, which is the U.S. Department of Education’s central database for student aid. But the loan alliance program doesn’t have anything to do with any federal agency.

The pitch was that she could qualify for some debt forgiveness on some student loans and make smaller payments on the rest. She was to see her monthly payments lowered to around $132 a month for whatever loans wouldn’t be forgiven. 

“I’m only making $49,000 a year,” said Cross, who graduated from Baker College in 2012 and works as a coding specialist in the home and hospice industry. 

She said it’s nearly impossible to cover more than $800 a month in student loan payments — in addition to her mortgage and other costs. She is married with  two children and her mother, who is on a fixed income, lives with the family.

Over time, Cross realized that no loans were really forgiven and nothing was being done to get her further out of debt. She was unsure how to make any monthly payments on her loans under the program and couldn’t get a hold of anyone. She soon filed a complaint with the Better Business Bureau Serving Eastern Michigan. (The company did not return calls made by the Free Press this week.)

Student loan borrowers are increasingly under attack through phone calls, emails, letters and texts offering them relief from their federal student loans or warning them that student loan forgiveness programs would end soon, according to the U.S. Department of Education. 

“Usually, the so-called student loan debt relief companies offering these types of services don’t offer any relief at all,” the Department of Education warns.

“Often, they’re just fraudsters who are after your money.”

In 2017, the Federal Trade Commission and other regulators cracked down on a string of such scams, noting that bad actors prey on hardworking Americans who are struggling to pay down their student loans. Some borrowers sign up for costly services after hearing misleading and false claims.

On July 11, the FTC announced that it stopped another student loan debt relief scheme run by Mission Hills Federal and Federal Direct Group that allegedly bilked more than $23 million from thousands of consumers with false claims that it would service and pay down their student loans.

Yet the scams haven’t vanished. 

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Amy Nofziger of the AARP Fraud Watch Network said its consumer helpline continues to receive several complaints relating to student loan debt relief. 

In some cases, consumers who don’t have any student loans at all are receiving these robocalls, indicating that some phishing is going on where con artists are hoping to find a live one. Consumer watchdogs warn that some may be using this trick to get personal information, such as Social Security numbers, as well as money. 

“I talked to a woman a few weeks back who was about to pay the money, but luckily had second thoughts,” Nofziger said. “She was a teacher so she said to me, ‘Of course I have student loans, I make $40,000 a year; I was thrilled to have some debt relief.’ “

Sometimes a robocall might start out with something like: “With the student loans crisis happening, Congress has passed the student loan forgiveness program and you are qualified because of your student loans.”

Democrats running for president — including Sen. Elizabeth Warren and Sen. Bernie Sanders — have campaigned aggressively with proposals to address $1.5 trillion in student loan debt. 

“The scammers use current events to confuse and play on victims,” Nofziger said. 

“Every politician is talking about student loans right now, so it gets confusing and victims think ‘Oh, I heard of this program.’ ” 

She said she believes that such outfits definitely target consumers in their 20s through 40s. 

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Borrowers pay hundreds for what they can do for free

The paperwork provided to Cross indicated that the service would enroll her in a “pay as you earn” repayment plan. 

The Pay As You Earn plan called “PAYE” is offered as part of the federal income-driven repayment plans. Yet there is no application fee to complete an Income-Driven Repayment Plan Request online at

While private companies might contact consumers and offer help to apply for a fee, consumers need to realize that they can do this on their own. 

“Borrowers do not need to pay for help with their student loans,” said Mark Kantrowitz, publisher and vice president of research for

“They can request a deferment or forbearance, choose a different repayment plan, consolidate their loans and apply for loan forgiveness for free at It should take less than half an hour,” Kantrowitz said. 

Kantrowitz said an $800 a month payment would be about what Cross would pay in a standard 10-year repayment plan.

But her payment could drop significantly to around $86 a month based on her income alone and a household of four if she opted for a PAYE plan on her own. He’s not sure how $132 a month was quoted. 

Such a strategy does not necessarily save money in the long run but it does bring down the monthly payment. 

“This payment would be negatively amortized, causing the loan balance to grow,” Kantrowitz said.

“But, after 20 years in repayment, the remaining balance would be forgiven. Such loan forgiveness is taxable under current law and would result in a 1099-C being issued,” he said.

Cross said she believes all the company did was take her three payments, as agreed to, and then deferred her loan somehow.

With a deferment, the federal government pays the interest on subsidized loans (up to a maximum of three years). But the interest on unsubsidized loans remains the borrower’s responsibility and the loan amount would grow over time as the interest builds if unpaid.

“The thing is growing like a cancer and I’m paying left and right,” Cross said. 

What are signs of a student loan scam?

Those who feel overwhelmed by student loan debt would be wise to watch out for signs of a student loan scam, Kantrowitz said. Such red flags include:

  • Charging an up-front fee. Demanding an advance fee for credit repair is illegal under federal and state law, and most student loan debt relief services are viewed as credit repair, Kantrowitz said. 

  • Asking for the borrower’s FSA ID. “Another sign of a student loan debt relief scam is if they ask for the borrower’s FSA ID,” Kantrowitz said. An FSA ID is a username and password that gives you access to Federal Student Aid’s online systems and can serve as your legal signature. Kantrowitz notes that the FSA ID is an electronic signature and can be used to change the borrower’s mailing address. Do not share your FSA ID.

  • Assertions that the borrower cannot get lower payments or forgiveness on their own. 

  • False claims of affiliation with the U.S. Department of Education or the Direct Loan program. This can include using logos and domain names that are confusedly similar to the ones used by the federal government. Kantrowitz warns to be careful of companies that may seem to be trying to look official by using logos with an eagle or including words such as “national,” “direct” and “federal” in the company name. 

  • Claims of quick loan forgiveness. Federal loan forgiveness programs take years for the borrower to qualify. 

  • References to Obama Student Loan Forgiveness. “There is no such program,” Kantrowitz said.

Contact Susan Tompor: 313-222-8876 or Follow her on Twitter @tompor. Read more on business and sign up for our business newsletter.


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