Debt relief companies assist student loan borrowers for an upfront or monthly fee (sometimes both) until their loans are paid in full. Before paying one of these companies, know exactly what they can and can't do for you. Otherwise, you may end up unhappy with what you receive—or much worse.
The Consumer Finance Protection Bureau (CFPB) and some states' Attorneys General are investigating some of these companies for fraudulent or deceptive practices. NerdWallet has even compiled a list of companies with questionable services or unreasonable rates. Not all of debt relief companies act poorly. But to help you determine if you were a victim of bad behavior—or if a debt relief company is legit—look for the following five warning signs.
1. Did You Get What You Paid For?
You have every right to pay for help with your student loans. But if you decide to, be sure the company does what you want them to do.
For example, you pay a company to consolidate your federal student loans. You continue to send them your monthly payments to process on your behalf. Instead, the company places your loans in forbearance and keeps your payments. Not only are they keeping your loan payments, but your loans are also growing due to interest accruing during the forbearance.
There is little reason or benefit to send your student loan payments to a third party. If you choose to do so, make sure to read all the fine print to ensure that your payments are processed correctly.
2. Did You Pay Before Receiving Help?
Always be wary of paying for help before knowing what that help actually is. A debt relief company may be acting illegally if they require you to pay them before they explain their services or document what you are paying for.
Also, remember that your federal student loan holder provides help with consolidation, default resolution, postponement applications, and other parts of repayment. No one can get you a lower interest rate, better repayment terms, or more forgiveness than you can get on your own from them for free.
3. Did They Promise "Obama Student Loan Forgiveness"?
This program does not exist—though it is a common promotional line advertised to student loan borrowers.
Don't pay to gain access to this or any other forgiveness program that provides immediate federal student loan forgiveness. If the program doesn't require income documentation or years of eligible service/payments, it's likely too good to be true.
4. Did They Require Your FSA ID?
You've heard a thousand times not to share your passwords, right? Your Federal Student Aid (FSA) ID falls into that category.
Giving a company access to this information allows them to take total control of your federal student loan information, including changing your contact information or performing other actions. A debt relief company can provide assistance without requiring this access.
5. Did You Sign A Third-Party Authorization Or Power of Attorney?
Signing a third-party authorization or power of attorney gives the debt relief company legal permission to make decisions regarding your student loans directly with your loan holders.
These authorizations can be helpful for individuals who will be inaccessible for a while (e.g., deployed military servicemembers) or are seeking legal representation (e.g., filing for bankruptcy). Before signing one, be fully aware of what the debt relief company needs it for.
Also, never allow a debt relief company to change your mailing address to theirs. That’s a quick way to get scammed, as you’ll have no idea how your loan is being handled—or if it is being handled at all.
How To Seek Help
If you are dissatisfied with the services you received, speak to the debt relief company directly. If you can't reach a mutually acceptable solution—and feel strongly that the company misled you—reach out to your state's Attorney General (AG). They will likely have an office of consumer affairs that may investigate your complaint.
The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) can also look into allegations of deceptive or unfair practices by debt relief companies. Both organizations allow you to file complaints right online.