You’re likely to have seen online ads or received emails from student loan debtors. You’ll see them more often as the student loan relief measures under the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act expire on January 31, 2022.
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How student loans work
College can be expensive. A bachelor’s degree at a public university costs $30,030. Most college students take out student loans to help pay for their education. According to a report from The Institute for College Access & Success, 62% of college seniors who graduated in 2019 had student loan debt.
Instalment loans for student loans can be referred to as student loans. You will repay them by making monthly payments over a specified loan term (e.g. 10 years). These loans are an unsecured type of debt that doesn’t require collateral and aren’t subject to any restrictions. The interest you pay on the amount borrowed will be charged at either a fixed interest rate or a variable interest rate depending on which option you choose when you take out your loan.
There are two types of student loans.
- Federal student loans: These loans are issued by the Department of Education and have lower interest rates than private loans. Federal loans are subject to a fixed interest rate and have a default repayment period of 10 years. The interest rate for undergraduate students is 3.73% on loans that were disbursed between June 1, 2021 and June 30, 2022. Generally, federal loans are exempt from any government action regarding student loans.
- Private student loans: These private student loans can be issued by specialty lenders, credit unions, banks and credit unions rather than the government. You must meet income and credit requirements to be eligible for a loan. Federal loans have a lower interest rate and repayment terms than private loans. According to TICAS, rates for undergraduate private loans were as high as 14.24% by 2019.
Common Scams with Student Loans
The Federal Trade Commission revealed that it had sent $1.7 million to student loan borrowers that were unable to pay back their loans due to a company they believed was affiliated with the Department of Education.
According to the FTC, this is not the only example of scammers using deceptive tactics to collect illegal upfront fees from student loan borrowers over many years.
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- They promise loan forgiveness
Although there are legitimate student loan forgiveness programmes, they have strict eligibility requirements and will only be available to a very small number of borrowers. Most people don’t know how these programs work and are therefore vulnerable to being misled by student loan forgiveness scammers.
Mark Kantrowitz is a student loan expert who has written numerous books on college financial aid. He says that companies use the opportunity of student loans forgiveness as a way to exploit people’s need and ignorance of student loans. “Scammers talk about ‘Biden Loan Forgiveness’ or broad-based loan forgiveness by Congress as if it has already happened.
To get your loans forgiven, these companies may charge you a lot of money. There are only two federal student loan forgiveness programs currently available. You cannot apply for them all at once.
Teacher Loan Forgiveness: This program allows teachers to receive up to $17.500 in loan forgiveness if they work in low-income schools for five consecutive academic years. The full amount of forgiveness is only available to teachers who are qualified in specific subjects such as mathematics or special education.
Public Service Loan Forgiveness: Students who work for government agencies or non-profit organizations can apply for PSLF. You must have worked for a qualifying employer for at least 10 years and make 120 qualifying monthly payments. PSLF is notoriously hard to get. Kantrowitz says that only 2 to 3 percent of PSLF applicants are able to get their loans forgiven.
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- They claim they can lower your payments or consolidate your debt
For a fee, many companies (sometimes called paperwork student loan companies) will promise to lower your monthly payments or combine your loans. Problem? The problem?
For simple tasks that you can complete online in under 30 minutes, these companies can charge hundreds or even thousands of dollars. You can consolidate debt if you are unable to afford the payments or can’t make them pay. Apply for an Income-Driven Repayment (IDR) plan at studentaid.gov.
- They ask for your Federal Student Aid (FSA ID) or other personal information.
Scammers might instead of trying to get your money upfront.
Scammers may ask for your FSA ID in order to reduce your monthly payments or apply for loan forgiveness. It is not a good idea to hand over your FSA ID.
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Kantrowitz explained that the FSA ID is an electronic sign. It’s used for more than just logging into your account. They can also take out loans and make changes to accounts.
Other than your FSA ID number, scammers might ask for your bank account information and credit card information. Never give out any personal information to anyone.
