The total student debt in the United States is roughly $1.3 trillion. That's a lot of money! Some companies (usually known as "debt relief companies") capitalize on this by charging for services student loan borrowers can get free from their loan holder.
To be clear, this is legal unless the company presents itself in a deceptive or fraudulent manner. However, as with anything you spend money on, you want to make a smart decision. Here are some details to help you evaluate whether you want or need to pay for assistance.
What Are Debt Relief Companies?
Debt relief companies assist borrowers with their loans. They do this for an upfront or monthly fee (or sometimes both) usually until you repay your loans in full. Many borrowers mistakenly use these companies, thinking they're one of their student loan holders.
Many of these companies have very similar names to actual federal agencies or federal student loan holders. Their logos may be very similar as well. But these companies are not associated with your loan holders or the U.S. Department of Education.
If you are unsure if the company contacting you is your loan holder, go to the National Student Loan Data System (NSLDS®) and contact the listed loan holder. For private student loans, contact the company that sends your monthly bill or go to AnnualCreditReport.com. You can get a free credit report there once every 12 months, and it will show you all your loans and who holds them.
What Debt Relief Companies Do
Debt relief companies facilitate certain student loan services on your behalf. Essentially, you pay them to fill out and submit paperwork for you. This is like tax preparation services. While you can file taxes for free yourself, many people pay for a program, tax preparer, or accountant to do this for them.
Debt relief companies cannot speed things up for you or lead to better outcomes. When deciding to use one of these company's services, be sure their fee is reasonable and what you'll receive from them is clear—and possible.
Like with anything, if the offer sounds too good to be true, it likely is. Be wary if the company offers:
There are many forgiveness and discharge options in the federal student loan program. Most require years of eligible payments, qualified employment, or documentation. Also, be aware that there is no "Obama Student Loan Forgiveness Program."
Low Payments Without Income Information
You may qualify for $0 payments under an income-driven repayment plan. But you must provide income documentation to determine your payment—and reapply for it annually.
Companies may also guarantee you a payment postponement. You may be able to receive this, but you would need to apply, qualify, and not have already used up all of your allotted deferment or forbearance time already.
Interest Rate Reductions For Federal Student Loans
The government sets federal student loan interest rates. No company can offer you a lower rate and keep the loans in the federal program.
Your interest rate would change if you consolidate your loans. When consolidating within the federal program, your interest rate will be the weighted average of your underlying loans rounded up to the nearest 1/8%. Receiving a rate lower than that means your loans are being refinanced outside of the federal program—which would cost you all of their postponement, repayment, and forgiveness options.
While debt relief companies may not deliver on the promises above, they may help with some other services, including:
- Consolidating your student loans.
- Changing repayment plans.
- Resolving defaults.
- Requesting discharges, including borrower defense to repayment.
- Determining if you qualify for Teacher Loan Forgiveness and/or Public Service Loan Forgiveness.
- Requesting deferments and/or forbearance.
- Applying for income-driven repayment plans.
Remember, you can also get this help from any of your federal student loan holders. If you're not sure who this is, you can find out in NSLDS. Anyone listed on a loan in your name on this site can help you, free of charge.
And since you're reading this, you likely know that Salt® is here for you as well. We can't comment on individual debt relief companies, but our counselors are happy to discuss repayment options with you.