Who would have thought you could run into a field of land mines just trying to slash a few bucks off your student loan payment each month?
Borrower, beware. It's bad enough that many college grads and others who took out student loans find it tough to pay the bills. But increasingly, they must dodge bad actors trying to take advantage of their plight. To be sure, some pretty good options exist for figuring out a maze of student loan repayment plans. You just want to avoid getting fleeced.
The latest warning: Watch out for official-looking federal logos that are slapped onto websites and social media sites to promote programs to reduce your student loan payments. A logo doesn't mean whatever's being offered is part of some generous federal bailout.
The U.S. Department of Education has sent cease and desist letters to two companies to stop the unauthorized use of that department's seal — Georgia-based Perfect Privacy, acting as SL Programs Student Loan and Debt Consolidation, and the Student Loan Project in California.
The department is again warning people that they should not be fooled into paying for student loan forgiveness. It's a free process.
But some debt relief companies charge up-front consolidation fees of $999 or 1 percent of the loan balance, whichever is higher. Or you might be asked to pay an "enrollment" or "subscription" fee that's as high as $600.
Some outfits charge monthly account "maintenance" fees of $50 per month.
The trouble is some direct mail can look super-legitimate, even spelling out how much money you owe in student loans.
"As best we can tell, anybody who has some kind of student loan has been targeted," said Persis Yu, the director of the Student Loan Borrower Assistance project at the National Consumer Law Center.
"They're looking for people who are probably very desperate with their student loans."
What's particularly upsetting is that consumers want income-driven programs to reduce their monthly student loan payments precisely because they're in dire financial straits.
Yu said she worked with one young woman who spent $600 to $700 to consolidate her student loans and then was hit with a "service fee" of $50 a month. Her income was so low that she didn't need to pay any money toward her student loans under an income-driven plan. But she was handing over money to cover all these charges.
"You don't need to pay to consolidate your loans," Yu said. "There's no cost to enroll in any of these programs."
Some outside outfits do not fully explain the various income-driven options. Some only post in small print on their sites that their companies are not affiliated with the U.S. Department of Education or the federal government.
The National Association of Student Financial Aid Administrators has noted that student loan borrowers shouldn't be lured into paying for federal benefits that are offered with no extra fees.
Other misleading emails or social media posts can include such wording as, "Obama Wants to Forgive Your Student Loans!"
Mark Kantrowitz, the publisher and vice president of strategy for Cappex.com, said income-driven repayment plans should be used mainly as safety nets for borrowers whose total student debt exceeds their annual income. They also can be used by borrowers who work full time in public service jobs, since public service loan forgiveness will cancel the remaining debt after 10 years of repayment in one of the income-driven repayment plans.
Borrowers need to consider whether they'd end up driving up the loan balance over the long run by using an income-driven repayment plan or using a deferment and forbearance, which suspend the repayment obligation and can drive up the total debt.
Make no mistake, though, plenty of people find the process incredibly confusing. And frankly, the confusion around income-related plans could create an opening for shady outfits.
"The challenge is that selecting an optimal repayment program for you is not always straightforward," said Matt Ribe, director of legislative affairs and corporate secretary for the National Foundation for Credit Counseling in Washington.
The nonprofit credit counseling group is launching a national student loan counseling program with certified counselors who can work with struggling borrowers. Each member group can charge a fee, but Ribe said typically fees would be less than $200 or so. Information is at 877-406-6322 or www.studentloanhelp.org.
Many times, the initial problem students face is figuring out how much they owe or whether their student loans are private or federal loans. A good website to start the research: www.studentloans.gov.
The federal government offers four income-driven plans as options to college grads or others juggling student debt who want to lower their monthly payments.
The plans are: the Revised Pay as You Earn Repayment Plan; the Pay as You Earn Repayment Plan; the Income-Based Repayment Plan; and the Income-Contingent Repayment Plan.
You have to go through your loan servicer to work out the repayment plan. To apply, you must submit an application called the Income-Driven Repayment Plan Request.
The federal student loan website has a calculator to help you determine repayment options under various programs. One can also go to www.studentaid.ed.gov to get more information on income-driven repayment plans.
No, you don't want to rush to a quick fix that you spot on social media. But studying the repayment options can make a good deal of sense for many who are burdened by student loan debt.
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