Student Loan Forgiveness Scammers Making Thousands With Trick Phone Calls

Consumers are being warned of a potential rise in scams targeting student loan borrowers following the Supreme Court's overturning of parts of Joe Biden's debt forgiveness program and the impending reintroduction of repayments.

On July 14 the Better Business Bureau (BBB), a consumer advice non-profit organization, issued an alert saying it expects to see an increase in student loan consolidation, reduction and forgiveness frauds—schemes that have already cost some people thousands of pounds.

Melanie McGovern, the BBB's director of public relations, told Newsweek that scams reported to them so far had been predominantly through phone calls, and that the warning had been prompted by recent news stories, which "scammers can take advantage" of.

Biden suspended federal student loan repayments during the coronavirus pandemic as many braced for the economic fallout of the national emergency. He also pledged to forgive some of the 43.6 million borrowers' debts.

The U.S. president had sought to knock at least $10,000 off the debt owed by eligible student borrowers—but this was blocked by lower courts, sending the dispute for final appeal.

Just before the summer recess, the Supreme Court ruled against the loan forgiveness element of the Biden administration's plan. The government has since announced it will be discharging $39 billion in debt for 804,000 borrowers through another legal mechanism, in a slimmed-down version of Biden's original plan.

Following the end of the official pandemic emergency, repayments are now expected to resume in October, but the Biden administration has also pledged to make repayments more affordable.

In a report to BBB from July 3, a teacher recounted receiving a phone call from a company in Anaheim, California, offering student loan forgiveness. After giving over their credit and debit card numbers, as well as their social security number a year ago, they saw $199 a month leave their bank until December, which they were told would drop to $80 a month in 2023.

However, in February they noticed that a payment had not been taken since December, and never heard back from the company. They reported the incident to their bank, but "by that point it was too late to receive a full refund for the damages," which totaled $1,200.

A further report, made on Monday, said another person had been contacted over the phone by a company in Syosset, New York, which had used "pressuring" tactics and talk of student loan forgiveness to deprive them of $520.

In another instance McGovern mentioned, someone was caught up in a loan scheme that cost them $209 for the first four months and $49 a month after that. "They've never got any of their money back and they still obviously have to pay their loans," she commented. "Sometimes it's just easier to pay your student loans than these payment plans."

While these reports make up just a handful of the loan-related scam entries BBB receives, the consumer advice body sees them becoming an increasing problem as the loan repayment start date nears.

"Whenever there's something in the news to this magnitude—such as the Supreme Court shooting down the student loan forgiveness [plan] and with payments resuming—we like to get ahead of it, just give people a warning," McGovern said.

She added: "The thought of having your loan forgiven for so many people is so incredible that you might not be thinking thoroughly through what you're giving your information to, [and] what the consequences are if it doesn't turn out to be true.

"So that's why it's really important to do that due diligence, do your homework, make sure any company you're working with is legitimate or if somebody says they're calling from the government, to confirm their identity—and in a lot of cases the government doesn't call people and say 'we're going to forgive your loan.'"

Among its recommendations, BBB advises consumers to be wary of out-of-the-blue texts, calls or emails claiming to be from the government and never give money to something purporting to be a free government program.

"Most government programs don't ask you for money; the government already knows your social security number, so you don't want to give out that kind of information to anybody who calls or sends you an email," McGovern explained.

She also suggested finding out "whether you qualify for any relief programs through your current student loan provider" as "a lot of them are really helpful, especially considering the past three years of the pandemic."

Asked about the form the student loan scams are taking, McGovern said that many of the reports BBB had received were phone calls, but stressed that there were reports of scam attempts via other media. She noted that there had been a "dramatic" increase in text scams—above 330,000 since 2020, up from 137,000 in 2019, Federal Trade Commission figures show.

"Somebody went online and found a program for student loan forgiveness, [which] said they could consolidate loans for a $199 service fee," she said. "After they got the payment, they stopped responding—a lot of times, that's exactly what happens in most of these scams: as soon as they get your payment information, the website disappears, you can't get hold on anybody."

Newsweek approached the Federal Trade Commission, one of the agencies primarily responsible for monitoring scams, via email for comment on Tuesday.

Update 7/19/23, 7 a.m. ET: The headline on this article was updated.