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Student loan forgiveness scams are on the rise. Here’s what to know

Weeks after applying for Public Service Loan Forgiveness, a federal program that forgives student loan debt for eligible workers, Kathleen Young received a phone call.

The woman on the other end said she could help Young forgive her student debt. Young, an elementary school teacher in Palo Alto, California, assumed that the US Department of Education was advocating the public service program.

She checked her Social Security number and gave the woman her bank account information for registration, which she was told she would collect and forgive her loans after 60 payments (public service loan forgiveness requires 120 eligible payments). The first payment was taken from her bank account in about 10 days.

But later, I realized something. I looked up Guidance Alum, the company I contacted, and saw that it was not affiliated with the Department of Education and had multiple complaints, including to the Better Business Bureau, about its services.

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“They got all this information from me, and I realized that they [the Education Department] Young said. Guidance Alum did not respond to CNBC’s request for comment.

I was able to close the bank account I provided to the company and sent Guidance Alum an official cancellation request. Now, she has multiple services monitoring her Social Security number, which she will keep for the rest of her life, she said.

A few weeks later, she received an email from FedLoan Service, the server that currently runs the Department of Education’s Public Service Loan Forgiveness program, and was able to sign up there and start making payments for the forgiveness.

However, she said she was horrified at the prospect of running into something that wasn’t necessarily up or down.

“You know, they say hindsight is 20/20,” she said. “I didn’t think this could happen at all, but the red flags were there.”

Young is not alone. Claims from companies claiming to offer student loan debt forgiveness have increased in recent months, likely spurred by confusion about the pandemic-related pause in payments and interest on federal loans and the push toward broad-based forgiveness.

said Bridget Healy, president of Borrower Success at Summer, a company that helps borrowers simplify and save on their student debt.

The coronavirus pandemic has also given scammers more ways to take advantage of people who have been financially hurt over the past year and a half.

“Scammers are really preying on the financially vulnerable, so with the pandemic, many people have been struggling financially and looking for financial relief,” said Kristen Evans, Head of Student and Young Consumers at the Bureau of Consumer Financial Protection. “This just creates the perfect breeding ground for scammers to take advantage of people.”

How to spot and avoid scams

According to Evans, the best way to avoid being deceived is prevention. Because of the current environment, she said, people should have a high degree of skepticism right now.

There are a few basic things people should look for if they receive a phone call or letter about student loan forgiveness.

People shouldn’t think that just because someone has information about student loans, such as the total balance, that means it’s from a legitimate operation, according to Evans.

“We know that fraudsters illegally obtained credit reports and then use that information,” she said.

Look for the name of the program you’re offered — some scams claim to be part of “Biden Loan Forgiveness” or “CARES Loan Forgiveness,” two programs that don’t exist, Evans said.

It’s kind of a major moment for the scams because I think they’re capitalizing on the confusion surrounding what’s going on with student loan policy and potential tolerance.

Bridget Healy

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If you receive a suspicious email, check to make sure it was sent from an email address ending in “.gov.”

Remember that federal programs do not require additional payments for loan forgiveness, so if someone is talking about charging you, that should be an immediate warning sign, Hailey said.

She also said she’s more careful about anyone who asks for your personal information like your Social Security number, federal student ID, credit card, or bank account — they generally need to be logged into a secure portal or given over to a phone server.

Hayley and Evans both said if you think something might be a scam or you have any doubts, the best course of action is to contact your provider directly.

What to do if you are a victim

If you fall victim to fraud and give away important financial information, you must act immediately to protect yourself from further harm.

If you provide the scammer with credit card or bank account information, contact your bank and card company immediately to close your accounts or stop payments.

You should also contact your student loan service, especially if you provide information such as your Federal Student Aid ID, so that they can monitor your account.

You may also want to check your credit report to make sure there is no suspicious activity, Evans said.

What to do if a scammer calls you

If you receive a suspicious phone call, voice mail, or even a letter that you think is a scam, you don’t necessarily have to take immediate action if you don’t answer or provide any personal information.

“You don’t have to do anything at all, if you don’t give them any information, you should be fine,” Hayley said.

You can, however, report it. One option is to file a complaint with the Federal Trade Commission notifying it of potential fraud. The other thing is to contact the state attorney general.

Finally, you may also want to check your credit score out of extra caution, Evans said.

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