Watch out for Student Loan Debt Consolidation Scams
NEW YORK ( MainStreet) Are you falling behind on student loan payments or worse, are you at the end of your last possible deferment? If so, you are a prime target for student loan debt consolidation scams.
In January, New York Governor Andrew Cuomo announced the creation of a new "student protection unit" to investigate the student loan "debt relief" industry. The Unit has already issued subpoenas to 13 student debt consolidation companies for claims of misleading advertising, high fees without appropriate notice and enrolling young adults in student debt relief programs that are available for free through the Federal government.
According to the Federal Reserve Board of New York, there are 37 million student loan borrowers with outstanding student loans today totaling approximately $902 billion. While reputable student loan consolidation can help make pay-back of several student loans more manageable by combining them into one lower loan payment with a new repayment term and interest rate, to student loan debt consolidation scammers, that's big business.
"Scammers are definitely taking advantage young adults' needs for student loan repayment options," says Reyna Gobel, student loan expert for Wisebread.com and author of CliffsNotes Graduation Debt . "If you have Federal student loans, you automatically qualify for free debt consolidation programs offered by the U.S. Department of Education (ED), the agency that oversees federal student loan programs, which offers the best repayment plans and terms on Federal student loans."
Do you have Federal loans, private loans or both?
Gobel says if you have only Federal student loans you want to consolidate, then stick with the Federal government's student loan consolidation programs offered by the ED. Only with a Federal Direct Consolidation Loan will you retain the subsidy benefits of your original Federal student loans while lowering your payments and rolling them all into one payment with one lender, the U.S. Department of Education. You will be offered flexible repayment options depending on your specific financial or employment situation while retaining deferment options if applicable. Gobel stresses these federal student loan consolidation programs are free with no qualifying loan amounts or fees.
<"p>It would be a major financial mistake to lose your Federal student loan benefits and choices, as well as to pay fees and possibly higher interest rates by going with an outside company," warns Gobel.
What if you have private loans, too? Gobel suggests simply calling that lender (usually a reputable bank) and asking the company what options it offers for making your payments more manageable. <"/p>
No matter what, don't roll your Federal student loans into a debt consolidation coupled with private student loans with an outside company, because chances are, your interest rate average will be much higher due to the personal loans."