VSAC joins Rep. Peter Welch, Attorney General Bill Sorrell to caution borrowers about offers that promise student loan debt ‘relief’
Sens. Leahy and Sanders voice concerns about predatory companies that may overcharge, hijack personal information from student borrowers
MONTPELIER (Aug. 15, 2014) – U.S. Rep. Peter Welch, D-Vt., says Vermont student-loan borrowers need to protect themselves from a new breed of predatory debt relief companies targeting $1.2 billion in education loans.
“Unfortunately, these types of companies prey on borrowers who may be struggling to pay their education loans. Unsuspecting borrowers could end up paying more – a lot more – without any added benefit but with the potential to suffer real consequences,” Welch said at an event with Vermont Attorney Bill Sorrell and the Vermont Student Assistance Corp.
“They charge large upfront fees for services that are available for free from the federal government. And they often convince borrowers to turn over their personal information – everything from Social Security numbers to assigning powers-of-attorney to the company.”
Watch the news conference video here: http://vp.telvue.com/preview?id=T01221&video=206789
Many of these companies try to lure borrowers with promises of having student loans forgiven or helping to repair bad credit. These tactics can cost borrowers more money in the long run and jeopardize borrowers’ long-term credit history, Welch said.
The U.S. Department of Education offers free, online services for students who want to consolidate their federal loans. Likewise, the Consumer Financial Protection Bureau has an entire division devoted to assisting student-loan borrowers with repayment plans and other tips, said Welch.
Nationally, nearly seven out of 10 students have borrowed to continue their education after high school.
“Student loan debt nationwide now exceeds what is owed on credit cards, and interest rates on these loans have grown far too high, forcing students to make difficult decisions about their futures, like whether to buy a home or start a family,” said Sen. Patrick Leahy, D-Vt. “It is unconscionable that these predatory lenders are allowed to take advantage of these students. To be hustled in such a way is a scandal.
“I have long supported efforts in Congress to reduce fraud and increase transparency, and I believe this issue requires urgent and serious attention. The economic livelihood of our nation’s students is at stake,” Leahy said.
In Vermont, the average amount of student debt is nearing $30,000 – slightly higher than national average, said Scott Giles, president and CEO of VSAC, the state’s nonprofit agency committed to the mission that all Vermonters can pursue education after high school.
“We know that education and training after high school is not a luxury — it’s a necessity. But figuring out how to pay for this all-important investment is complex and getting more costly by the year,” Giles said. “In the past few months, VSAC has identified more than a dozen of these student debt relief companies which have submitted powers-of-attorney requests to us. Student-loan borrowers are being tricked into paying upfront fees, sometimes in excess of $1000, to these types of private firms offering ‘debt relief’ that they could get for free.”
Vermont is joining a growing list of states taking a look at these types of companies, said Attorney General Bill Sorrell. Illinois has sued two such firms and New York has subpoenaed records from 13 doing business there. Both Arkansas and Minnesota attorneys general have issued consumer alerts in their states.
“I have directed my office to start investigating this problem,” Sorrell said. “With students graduating and trying to find jobs and manage significant debt, we want to ensure their precious resources are not wasted on illegal, predatory and superfluous debt adjusters.”
Of the company names turned over by VSAC to his office, it appears none are licensed to do business in Vermont, a violation of state law, Sorrell said.
Any company offering debt settlement or debt adjustment services to Vermonters must be licensed to do business with the Vermont Department of Financial Regulation.
Sen. Bernie Sanders said that student debt is crippling the American dream. “At a time when millions of graduates are struggling with huge college debts, it is outrageous that some companies are preying on borrowers. Ultimately, we must make college more affordable so students may get an education without going deep in debt.”
VSAC offers these suggestions to student borrowers:
Don’t pay any upfront fees. Student loan debt relief companies charge “consolidation fees” that are actually free by applying for loan consolidation at www.studentloans.gov. Some fees are reported in the range of $900 to 1 percent of the balance (whichever is larger).
These companies often charge enrollment or monthly maintenance fees to “manage” the loan account. These services don’t add any benefit and do increase monthly loan payments without reducing what is owed.
Never agree to sign over your Personal Identification Number (PIN) or sign a power of attorney. This allows the company to act on a borrower’s behalf but leaves the borrower liable for the promissory note and related consequences. These practices also violate the U.S. Department of Education guidance.
Investigate your repayment options. You have a choice of several repayment plans that are designed to meet your needs. The amount you pay and the length of time to repay your loans will vary depending on the repayment plan you choose. . There are income-based repayment plans, loan forgiveness plans and pay-as-you-earn plans. Some borrowers may have experienced defaulting on a student loan. This is no reason to pay additional costs to one of the student debt companies. Remember, loan consolidation is free, as is applying for a loan rehabilitation plan. Information is available at https://studentaid.ed.gov/repay-loans/understand/plans.
Always discuss your questions or concerns with VSAC or another loan servicer first. Borrowers who have already signed contracts are encouraged to contact the Consumer Assistance Program at the Vermont Attorney General’s office by emailing firstname.lastname@example.org or calling toll-free in Vermont at 800-649-2424.
Vermont Student Assistance Corporation is a public, nonprofit corporation created by the Vermont Legislature in 1965 to help Vermonters plan and pay for education or training beyond high school. VSAC administers Vermont’s 529 college savings plan; outreach services to encourage low-income students to aspire to and complete college; college and career planning services for all Vermonters; need-based state grants for full-time, part-time and non-degree study; public and private scholarship programs; and education loans. Find us at www.vsac.org or on Facebook at https://www.facebook.com/VermontStudentAssistanceCorporation.