TIME — On Monday, Illinois became the first state to sue so-called debt settlement companies for fraudulent student loan practices. The New York Times reports that two companies, Broadsword Student Advantage and First American Tax Defense, were sued for charging customers for debt assistance they never received.
Debt settlement companies, which consumers pay for help consolidating their loans and decreasing their monthly payments, have long had a reputation for taking advantage of desperate borrowers eager for a quick fix. With Americans now holding $1.2 trillion in outstanding student loans, college grads appear to be an increasingly attractive target.
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The most frustrating part of debt relief fraud is that a legitimate version of the services offered by scammers are usually available at no cost to borrowers. Common student loan scams include offering to consolidate student loan payments (putting multiple loans under one lower monthly fee), debt forgiveness, or lower monthly payments. All of these services are offered free of charge by the Department of Education to eligible borrowers.
Persis Yu, a staff attorney at the National Consumer Law Center’s Loan Borrower Assistance Project, says she’s never seen a loan assistance company offer anything that isn’t already offered by the federal government. “The bottom line is they’re charging you for information you can get for free,” says Yu. In a 2013 report, the National Consumer Law Center found some student loan relief agencies charged up to $1,600, or $20 to $50 a month, for what amounts to filling out a few forms.Yu believes that the primary cause of student loan relief fraud is a failure to educate the public about current government options.
