NerdWallet: Student Debt Relief Companies Are Dishonest

(Photo: Flickr, Creative Commons)

(Photo: Flickr, Creative Commons)

A collaborative report produced by NerdWallet and the non-for-profit higher education advocacy group Student Debt Crisis reveals dishonest practices being undertaken by student debt relief companies.

Prior to the publication of the report, data on debt relief companies was almost non-existent. This survey changes the narrative of what we now know about debt relief companies and presents opportunities for policymakers and consumer protection initiatives.

Alarmingly, 9% of students who accessed assistance through these debt relief companies were, on average, $600 out of pocket for a service that is provided for free by the federal government.

Teddy Nykiel and Victoria Simons from NerdWallet report that the:

“… results varied by race: 15% of black respondents say they’ve paid for student debt relief services, compared with 13% of American Indian respondents, 11% of Hispanic respondents, 9% of white respondents and 8% of Asian respondents.”

Students are faced with navigating a federal student loan system that is complex, technical in nature and serviced by private companies. The government system comprises various financial programs aimed at assisting students to repay their loan including repayments based on a percentage of income earned, loan forgiveness programs and postponing debt repayments.

The government has made attempts to streamline the loan repayment system with students having access to a new government run portal – however, the government has not yet set a date for the portal to go live.

Students are left to communicate with individual loan service’s until the portal is up and running.

Astoundingly, debt relief companies are using targeting advertising on social media sites to attract students to their loan services, and according to a 2015 Consumer Financial Protection Bureau report:

“[B]orrowers in distress [are] particularly susceptible to marketing by these debt relief companies.”

Sending text messages directly to a students cell phone is also an approach being employed by these debt relief companies.

The tactics used by these companies are persuasive and constant. NerdWallet reports that some students are asked to provide personal information over the phone including their social security number and passwords to their accounts.

Respondents to the survey were able to name around 200 debt relief companies, which use these strong sales techniques to gain customers.

Parents and students are cautioned to learn more about debt relief agencies as many claim affiliation to the government by using Departmental logos or official sounding titles.

The report by NerdWallet is a significant piece of work and a great resource where parents and students can learn more about their rights and responsibilities when it comes to student loans and the sorts of government programs that are available to them.

Nerdwallet reports that student debt relief companies charges for their services, although options through the Department of Education and federal student loan servicers are free; they ask for the borrower’s personal information; and the the company implies that it’s affiliated with the Department of Education.

If students are currently paying a debt relief company, Persis Yu, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, suggests that they contact the loan servicer and “revoke the debt relief company’s rights to their account”.