Student loan cancellation scams are on the rise. Here is what you need to know

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Weeks after request for public service loan discount, a federal program that cancels student loan debts for eligible workers, Kathleen Young received a phone call.

The woman on the other end of the phone said she could help Young cancel his student loan debt. Young, an elementary school teacher in Palo Alto, Calif., Speculated that it was the US Department of Education calling about the public service program.

She verified her social security number and gave the woman her bank account information to enroll, which she was told to consolidate her loans and return them after 60 payments (utility loan remission requires 120 qualified payments.) She was informed that she would see her first payment withdrawn from her bank account in about 10 days.

Later, however, she realized that something was wrong. She searched for Guidance Alum, the company that called her, and found that she was not associated with the Ministry of Education and had multiple complaints, including with 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] would never ask for that information over the phone, ”Young said. Guidance Alum did not respond to CNBC’s request for comment.

She was able to close the bank account she gave to the company and sent Guidance Alum a formal cancellation request. Now she has several services to monitor 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 duty officer who currently manages the public service loan cancellation program for the Department of Education, and was able to enroll and start making payments for the cancellation.

Still, she said she felt bad about falling for something that wasn’t necessarily booming.

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

Young is not alone. Demands from companies claiming to offer student loan debt forgiveness have escalated in recent months, potentially spurred by confusion around the pandemic-related federal loan interest and payment pause and pressure for a forgiveness generalized.

“This is kind of a prime time for scams because I think they capitalize on the confusion around what’s going on with student loan policy and potential forgiveness,” said Bridget Haile, Chief Success Officer. borrowers at Summer, a company that helps borrowers simplify and save on student debt.

The coronavirus pandemic has also given con artists more means to take advantage of people who have suffered financial harm over the past year and a half.

“The crooks are really preying on the financially vulnerable, and so with the pandemic, many people are struggling financially and they are looking for financial relief,” said Kristen Evans, head of the students and young consumers section at Consumer Financial Protection Bureau. “It just creates the perfect breeding ground for crooks to take advantage of people.”

How to spot and avoid scams

According to Evans, the best way to avoid getting ripped off is through prevention. Due to the current environment, people should have a high degree of skepticism right now, she said.

There are a few key things people should watch out for if they get a phone call or letter about a student loan forgiveness.

People shouldn’t think that just because someone has information on their student loans, such as the total balance, that means they came from a legitimate transaction, according to Evans.

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

Look up the name of the program offered to you – some scams claim they are part of the ‘Biden loan forgiveness’ or the ‘CARES law loan forgiveness’, two programs that don’t exist, Evans said .

This is sort of a prime time for scams because I think they capitalize on the confusion around what’s going on with the student loan policy and the potential forgiveness.

Bridget haile

Borrower Success Manager at Summer

If you received a suspicious email, make sure it is sent from an email address that ends in “.gov”.

Remember, federal programs don’t require additional payment for loan cancellation, so if someone is talking about charging you, that should be an immediate red flag, Haile said.

She also said to be very careful with anyone asking for your personal information such as a social security number, federal student aid ID card, credit card or bank account – this information generally needs to be recorded on a secure portal or transmitted by telephone to the server.

If you think something may be a scam or are in doubt, the best thing to do is to contact your repairman directly, Haile and Evans said.

What to do if you are a victim

If you have been scammed and given important financial information, you must act immediately to protect yourself from further damage.

If you’ve provided a scammer with credit card or bank account information, immediately call your bank and your card company to close your accounts or stop payments.

You should also call your student loan department, especially if you’ve provided information such as your Federal Student Aid ID number, so they can monitor your account.

You can also check your credit report to make sure there isn’t any suspicious activity, Evans said.

What to do if you’ve been contacted by a scammer

If you’ve received a suspicious phone call, voicemail, or even letter that you think is a scam, you don’t necessarily have to take immediate action if you haven’t responded or given some personal information.

“You have absolutely nothing to do, if you haven’t given them any information, everything should be fine,” Haile said.

However, you can report it. One option is to file a complaint with the Federal Trade Commission notifying them of the potential scam. Another is to call your state attorney general.

Finally, you might also want to check your credit score out of prudence, Evans said.

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