State and federal lawmakers have been cracking down on sham companies that prey on student loan borrowers eager to erase education debt. Photo by zimmytws/Shutterstock
WASHINGTON, Nov. 13 (UPI) -- Against the backdrop of a rising tide of student loan debt and growing concerns of a nationwide crisis, state and federal lawmakers have been cracking down on companies using illegal tactics to go after desperate student loan borrowers.
Scams that promise loan consolidation or debt reduction to student borrowers at a fee have been on the rise, much like mortgage scams that prey on defaulting homeowners, analysts said. In the past few months alone, 10 student loan debt-relief companies have been targeted by government lawyers across the country, many of the companies facing legal action for alleged fraud and violations of consumer protection laws
"These scams are proof that the rate of student loan debt in this country has skyrocketed, and it has already destabilized the financial security of millions of people across the country," Illinois Attorney General Lisa Madigan said earlier this year in suing five companies that promised debt reduction or elimination. "When people cannot make their loan payments, they don't get to build the future that they dreamed about when they went to college. We cannot allow these scams to continue."
About 43 million college students have about $1.2 trillion in outstanding student loans. As a growing number of people struggle to repay their student loans, many questionable companies have been offering help at a price.
About a year ago, the Consumer Financial Protection Bureau issued a warning to borrowers eager to dump their student debt, saying the companies "prey on distressed borrowers who run into trouble and struggle to figure out what comes next."
Today, the situation has not improved. The following is a sample of legal actions taken against student loan debt relief companies:
College Education Services, based in Tampa, Fla.
The state of Florida, with the CFPB, shut down the company after allegations it violated federal telemarketing laws. The company never admitted or denied guilt, but agreed to cease operations and pay $50,000 in fines.
Federal Student Loan Alliance, based in Tustin, Calif.
In a lawsuit filed in May, the Illinois Attorney General alleged the company violated the state's consumer fraud and debt settlement laws by charging thousands in up-front fees and falsely advertising they can stop wage garnishments, and prevent and remove tax liens resulting from defaulting on student loans. The attorney general, at the same time, filed lawsuits against four other companies accused of scamming student loan borrowers -- Consumer Financial Resources of Texas, Interactiv Education of Florida, Nationwide Student Aid of Illinois and Student Consulting Group of Georgia.
Student Loan Processing, based in Dallas
In August, a Washington state judge found the company violated consumer protection laws more than 2,700 times by charging up-front fees at least 10 times the legal limit and collecting excessive monthly fees. In early November, the company was ordered to pay a $418,000 judgement, which includes $144,896 in borrower's fees and $124,000 in court costs.
"Students graduate from Washington universities with an average of nearly $25,000 in debt," Washington state Attorney General Bob Ferguson said. "This firm preyed on students who sought their help. I will not tolerate the financial abuse of already overburdened Washington students. I'm pleased this agreement offers a measure of justice for the victims."