Can a New Website Put a Stop to Student Debt Relief Scams?

By cutting out the middleman, the U.S. Department of Education hopes to provide consumers with an easier, more honest repayment experience.

(Photo: Roy Hsu/Getty Images)

Apr 5, 2016· 2 MIN READ

Culture and education editor Liz Dwyer has written about race, parenting, and social justice for several national publications. She was previously education editor at Good.

Nearly $1.35 billion. That’s the eye-popping amount of student loan debt Americans owe—an amount that creeps up at a rate of $2,726.27 per second. Now, the U.S. Department of Education hopes to make it simpler for borrowers to pay it all back.

On Monday, the department announced plans to launch a comprehensive web portal where borrowers can make payments, get information, and make other adjustments related to their debt. The changes seem targeted to squash the numerous scams—“cut your student loan bills in half!”—targeting folks who owe money borrowed for their education.

“This year, our goal is to build a new state-of-the-art loan servicing system—one that creates incentives and guidelines that support a more user-friendly single online loan management platform with high-quality, one-on-one customer service that provides the help and guidance borrowers need when they have questions or their circumstances change,” Ted Mitchell, under secretary of education, wrote in a blog post on the department’s official website.

The announcement comes on the heels of Sen. Elizabeth Warren’s call last week for the department to overhaul the student loan repayment process. “Everyone in government who is serious about standing up for the tens of millions of student loan borrowers in this country should embrace them, because we shouldn’t be running the student loan program to create profits for private companies,” Warren said in a statement. “We should run it for students.”

A one-stop shop for repaying federal student loans might seem like something that would already exist. However, the roughly 40 million Americans who’ve borrowed cash for school currently have to navigate a confusing hodgepodge of financial companies, such as Navient Solutions (formerly Sallie Mae) and Nelnet, that have contracts with the government to service loans.

Warren and other advocates for borrowers have long charged that these contracting companies have offered subpar services to consumers. In early March, Navient Solutions was ordered to pay back about $60 million that it had overcharged military borrowers between 2009 and 2014.

Meanwhile, if borrowers fall behind on their debt or get mixed up about what company is servicing their loan, confusion over how to put things right can lead to financial disaster. As a result, when borrowers receive an official-seeming notification from a company offering to consolidate their loans, reduce payments, or get a loan out of default—often for an up front fee of as much as $2,500—they may not know it’s a scam.

“What really concerns us is that the issues and practices we see are eerily similar to what happened in the wake of the mortgage meltdown, where we saw a number of scammers doing comparatively what they’re doing now in the student loan context,” Seth Frotman, the student loan ombudsman of the Consumer Financial Protection Bureau, told ThinkProgress in September. “What we’ve seen is that many of the same practices, and many of the same entities, have sort of migrated over and have now really set their targets in the student loan space.”

On Friday the Consumer Financial Protection Bureau announced that it had helped shut down Student Aid Institute, a San Diego–based company that has fleeced millions from vulnerable borrowers. The bureau said in a statement that it would continue to target scammers as well as “sloppy servicing” from providers.

How pervasive are these scams? Illinois Attorney General Lisa Madigan said in March that student debt relief is now the most common consumer scam in her state. Madigan told the Chicago Tribune that when borrowers try to get in touch with the companies that are supposed to service their student loans, they “rarely get any real help.” As a result, “they turn to scam artists.”

Over the past year, Madigan and the attorney generals for several other states, including California and Minnesota, have filed suit against various scam operations in the hopes of shutting them down and getting people their money back. Although it’s unclear how much money the dozens of scam artists operating nationwide have bilked from borrowers, the proposed changes announced by the Department of Education on Monday seem designed to end the corruption.

It’s unclear whether the department’s existing contracts with companies such as Navient Solutions will continue, and Mitchell didn’t provide a timeline for a rollout of the launch of the new portal. However, he wrote that it will make it “easier for borrowers to navigate loan repayment” while also giving the department information on “how the system is performing and where improvements are needed.”