State and federal consumer protection groups may be getting ready to crack down on deceptive companies that promise to help relieve recent grads of their student loan debt, but do little to earn their sizable fees.
New York governor Andrew Cuomo announced Jan. 22 that the state’s new Student Protection Unit had recently begun investigating student debt relief companies, which claim to help students consolidate their student loans and restore their damaged credit.
The state has issued subpoenas to 13 student debt relief companies sprinkled around the country and is investigating whether these companies have taken advantage of recent grads with deceptive advertising and excessive fees.
“The rising tide of student loan debt has made it more important than ever that we put in place strong consumer protections for New York students,” said Cuomo in a statement. “Any company trying to sell students a raw deal using misleading or deceptive practices should know we’ll continue to work vigilantly to root out consumer abuse.”
The investigation comes just six months after 23 U.S. senators urged federal regulators to investigate student debt relief companies and crack down on unreliable companies preying on student borrowers.
In a letter to the Consumer Financial Protection Bureau, the Federal Trade Commission and the Department of Education, the senators prodded the regulators to enforce existing laws or create new rules if necessary. “We owe it to student loan borrowers — and to taxpayers — to ensure that unscrupulous business practices are not taking advantage of the student debt crisis,” wrote the senators.
The problem with student debt relief
The National Consumer Law Center, a consumer advocacy group based in Boston, helped draw attention to the student debt relief industry last summer, when it published a 35-page report exposing some of the industry’s worst practices.
According to the report, many companies are charging high fees for helping enroll consumers in borrower assistance programs that are actually free federal programs, available to anyone who qualifies. Some of the programs include federal income-based repayment plans and loan consolidation.
“Congress, not private companies, created these programs,” wrote Deanne Loonin and Jillian McLaughlin in the report. However, “nearly all of the companies we surveyed, through both secret shopper calls and website reviews, either do not inform borrowers that the products they offer are government programs or bury this information in fine print.”
Some companies charge borrowers one-time enrollment fees as high as $1,600 and ongoing monthly fees ranging from $20 to $50 per month, the consumer law center said. “The monthly fees are particularly suspect since it is unclear what services, if any, the consumer is buying on a monthly basis,” wrote Loonin and McLaughlin.
The NCLC also documented numerous instances in which debt relief companies provided customers with inaccurate or misleading information about student debt consolidation, wage garnishment and similar topics, and wrongfully told customers that they couldn’t enroll in federal loan assistance programs without the debt relief company’s help.
“Given the many misrepresentations we uncovered, it is unlikely that these companies are providing quality services in return for the money they are charging,” wrote Loonin and McLaughlin.
What you can do yourself
If you’re saddled with student loan debt and are interested in enrolling in a federal borrower assistance program, you can learn more about the programs that are available at the National Consumer Law Center’s site StudentLoanBorrowerAssistance.org or at the Department of Education’s Federal Student Aid site. The CFPB also offers an interactive guide for student borrowers that can be particularly helpful for consumers struggling to make sense of all the information online.