US President Joe Biden delivers remarks regarding student debt cancellation in the Roosevelt … [+]
The good news is that loan forgiveness is here. The bad news is that so are loan forgiveness scams. The Biden administration plans to cancel $10,000 to $20,000 in federal student loans for eligible borrowers over the next few months. After months of deliberation, this is a great outcome for anyone struggling with student loans, especially the many borrowers who have never earned a degree or diploma.
Scammers and scammers are trying to exploit the media buzz around loan forgiveness. The Better Business Bureau (BBB) has already received hundreds of complaints about scams targeting student borrowers. If you type “student loans” on their scam tracking site, you get over 1,200 results.
Scams hurt people hoping for debt relief, so here are some tips to avoid falling prey to student loan scams.
What are the fraudulent red flags to look out for?
The biggest red flag for scams is someone asking for a processing fee or prepayment to help you complete your application. There is no application fee for President Biden’s loan forgiveness proposal. There will be paperwork for a lot of people, but anyone asking you to pay to apply is trying to steal your money. There are legitimate private companies that the US Department of Education contracts with – loan servicers, for example – but they will never charge you a fee for helping provide information about your loans. You can always check if a company works with ED by checking the Federal Student Aid site to avoid scams.
Scammers may also try to obtain private information such as your social security number or banking information. If you receive a call that seems legitimate, it is always best to verify the information with the federal agency in charge of the program.
If you come across a scam, you can help stop them by reporting it to the BBB scam tracker above. The more people report scams, the easier it becomes to stop them.
When will the Biden administration start giving debt forgiveness?
The Biden administration says the application for student loan forgiveness will be available in early October. So anyone calling, emailing, writing or texting and trying to convince you that you need to apply today to have your debt canceled is lying. You can use this federal website to sign up for notifications and receive updates once the app is available.
Many scams rely on creating a sense of urgency or the idea that you might be missing something to trick people into making rash decisions. It is therefore difficult to determine what is a scam and what is a legitimate organization helping borrowers to get help. There are real deadlines for some programs that many legitimate organizations will be encouraging borrowers to apply for over the next few months. The civil service loan forgiveness waiver, for example, ends on October 31, and borrowers will be under increasing pressure to apply before the easier application rules disappear. There is also a major legal agreement that forgives student loans from over 150 colleges that tricked students into promising them false employment and income outcomes. Some students have to apply to be considered for pardon as part of the legal settlement – again, making it difficult to know what is real and what is a scam. If you think you attended a college included in the settlement, you can learn more at the Predatory Student Loans Project FAQ site.
Whenever possible, it is best to verify any information with federal websites that end in a .gov web address. For broad debt forgiveness, ED said the application will be available until December 31, 2023. So anyone who says you need to apply immediately, or you’ll miss out on forgiveness, is likely a scammer. There’s no need to think you’ll miss out if you wait an extra day or two to complete the application.
ED estimates that they will be able to automatically grant loan forgiveness to approximately $8 million of borrowers. All others will need to apply.
Who will get forgiveness?
Students who received Pell grants while in college will receive up to $20,000 in total forgiveness, with $10,000 in forgiveness for all other borrowers who meet the income criteria. Borrowers who earned less than $125,000 ($250,000 for couples) in 2020 or 2021 will be eligible. This approach will focus 90% of debt relief on households earning less than $75,000 per year. The administration estimates the decision will eliminate debt for 20 million borrowers, 43 million of whom will be eligible for some amount of forgiveness. Not everyone will be eligible for loan forgiveness and not all debts will be forgiven. If you know you’re not eligible, but you’re getting offers that sound too good to be true, you probably are.
Student loan forgiveness will bring a lot of relief to many borrowers. Hopefully we can limit the number of people trapped by scammers trying to take advantage of the situation.
