Applying for financial aid and repaying student loans can be stressful—so stressful that many people would happily avoid these situations if they could. Some companies understand this, offering to do the work for you, like filling out your Free Application for Federal Student Aid (FAFSA), consolidating your student loans, applying for loan forgiveness, or fixing your defaulted loans.
Does this sound too good to be true? Well, that's because it is—sort of. While these companies may not be outright scams, signing up for their services could end up costing you. That's because they charge for services you could otherwise get for free.
Here are four situations where companies might ask you to pay for loan help, and free resources you can use instead:
1. Filling Out The FAFSA
Some companies offer to complete your FAFSA for you, but you have to pay a fee. This could just be one fee for the entire application, or consultants could also charge you for multiple meetings with them.
This may seem tempting—after all, the FAFSA seems confusing, and you want to make sure you get as much aid as you can. But these companies won't get you more aid than you can by filling out the FAFSA on your own. Spending your money on them only takes away money you could use for college.
If you have trouble with the FAFSA, you should get help, but go to free resources instead. The office of Federal Student Aid has a free chat option where you can talk to an expert about your concerns (you can call or email, too, 7 days a week). Your school's financial aid office is another good resource, and many states host FAFSA-completion events where you can get free help from financial aid administrators who volunteer to assist students like you.
If you live in the greater Boston area, you can also try stopping into an ASA College Planning Center where you can get one-on-one assistance.
2. Applying For Scholarships
Other companies say they'll find and apply for scholarships for you, and some even guarantee you'll get free money. But these companies charge huge fees, and you may end up paying the company more than you receive in scholarships—if you get any.
Legitimate scholarships won't charge you a fee to apply. Scholarship applications are all about you—so you're the best choice to fill them out. Don't risk spending a ton of money for little or no reward.
Instead of paying for scholarship help, use Salt's free scholarship search tool, or ask your financial aid office about scholarships. If you're still in high school, your guidance office should have a pretty good catalog of local scholarships as well.
3. Managing Your Debt
Everyone wants to get rid of their student debt. Companies recognize this and claim that they can get you out of debt faster or reduce your payments … if you pay them a percentage of your debt, an exorbitant fee, or sometimes both.
These companies "reduce your debt" by consolidating your loans, changing your payment plan, or postponing your payments. They may even make promises of lowering your payments to $0 per month. And while this is technically possible with an income-driven repayment plan like income-based repayment (IBR), Revised Pay As You Earn (REPAYE), income-contingent repayment (ICR), or Pay As You Earn, you can apply for these yourself.
The problem is the same with all these other strategies: You can do them all on your own by contacting your loan holder for free and cutting out the middle man. No company that charges you money can reduce your debt faster than that. And in some instances, these companies may actually do more harm than good. Stick with the free help, and use the money you save to pay off those loans.
Your loan holders and the U.S. Department of Education can help you if you want to consolidate your loans, apply for forgiveness, or find a new repayment plan. Salt® and our parent organization also provide information and resources that will help you manage your loans—and won't charge you a thing for the assistance.
4. Getting Out Of Default
Acting quickly should appeal to you if your loan is in default—that means the loan is 270 days past due for federal student loans—and now you're required to pay its entire balance. If you need help in this situation, you might be willing to pay for it. However, you don't have to.
There are three ways to get a loan out of default if you have a federal student loan:
- Paying in full
If your loan is in default, you may have to pay collection costs up to 18.5% of the loan if you consolidate, up to 16% if you rehabilitate, and potentially up to 25% if you pay in full. Collection costs cannot be applied to your account if you responded within 60 days of your initial default notice and:
- Entered into a repayment agreement (including a rehabilitation agreement), and honored the agreement
- Consolidated your defaulted loan successfully
- Paid the loan in full
These collection costs are determined by federal regulations, and no company (no matter how great the deal sounds) can lower the collection rates.
But to "help" you, some debt relief companies will charge you another fee (one time or monthly) or a percentage on top of those collection costs. That's money you could use for other expenses—or to pay down this debt. You can call your loan holders to start the consolidation process for free (they can't charge you for their help), so why would you pay for the same service?
When you're paying off student loans, every cent counts, and saving money is always the right decision. There's plenty of free help out there—don't waste your money on companies that charge for student loan assistance.