Student Loan Relief Companies Sued

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Today marks the first warning shot that student loan relief companies hoped they would never hear – the CFPB has acted jointly with the state of Florida to take action against two student debt relief companies. In both actions, the CFPB stated that these companies took unfair advantage of consumers and misinformed them, as well as not delivering on the results they had promised. By working with the Florida Attorney General’s office, it seems that the Consumer Financial Protection Bureau intended to make a definitive statement that federal regulators would not stand by as the student loan relief companies edged further and further into dangerous territory in terms of marketing practices.

The student debt relief industry has arisen in part due to the student loan problems that borrowers are facing, and the difficulty they are having in getting a true understanding of their options. In what was considered the first major report bringing attention to the student debt relief industry, the National Consumer Law Group published their Searching For Relief report which has been referenced by the state level actions that sooned followed. In this report, the NCLC highlighted the abusive practices that many student debt relief companies were involved in; but they also noted that the reason these companies existed was because of a difficult bureaucracy for borrowers to navigate through when trying to get help for their student loans.

However, many of the old school debt relief people couldn’t resist applying the deceptive and fee heavy model of upfront debt settlement to this new “opportunity”. Unfortunately, it appears that applying the upfront debt settlement model to the student loan crisis is trying to fit a round peg in a square hole.

First, the New York Governor’s office created a special commission to investigate these companies in light of the NCLC report. Shortly after that, the Illinois Attorney General filed suit against two large student debt relief companies; marking the first state level action. As was the case with the upfront-fee debt settlement action, state level lawsuits preceded federal litigation. This is likely only the first volley from the federal regulators, and it will likely continue as long as these practices persist.

Remember, you don’t need to pay for help with your student loans, and you can access the federal programs at studentloans.gov, or through your loan servicer. If you have difficulty working with your loan servicer, or would like to hire a certified financial professional with a great deal of experience in the process, make sure that they are being honest with you. It can be tough to navigate through the system – especially after the applications are submitted. There are also instances when it’s just a time issue, especially if you have a lot of loans. Also, it can be tough to get a gameplan together when there is so much information out there.

The NCLC does note that it’s possible to help borrowers for a profit, but they seem cynical that anyone is even doing this correctly, which is understandable given the hundreds of nearly identical debt relief companies that have sprung up in the last three years. NCLC Director Deanne Loonin said in a blog followup in response to the “tax preparation metaphor” that:

“Perhaps the comparison might make some sense in an ideal world where the companies were providing quality service, accurately informing borrowers that they can contact their servicers and get into the same programs for free, informing borrowers that the “debt relief:” companies have no special access and do not offer any special programs, and encouraging borrowers to check in with their servicers. But just read the complaints filed by the office of Illinois Attorney General Lisa Madigan to see how far off the real world practices can be from the ideal.”

The good news is that there are companies and individuals out there who can legitimately help you navigate through student loan issues, and develop a custom strategy. The bad news is that there aren’t very many of them, because they have been drowned out by the million dollar marketing budgets of student loan relief companies. They probably won’t have a name that sounds like your loan servicer, and neither will they charge an upfront fee before services are delivered.

Another good sign is if they aren’t afraid to tell you, prominently on their website and communications, that the applications for IBR, PAYE, Direct Consolidation, Loan Forgiveness, etc, are all available through www.studentloans.gov. If your loan situation is complex and you need someone who has experience dealing with these issues, not just submitting the free applications you can do on your own, then Contact Me here. You can also get some private student loan consolidation help here.

I’m also offering compliance training to student debt relief agencies who want to assist borrowers through the guidelines recommended by the NCLC and state and federal lawsuits. Something tells me that my Student Loan Counseling model will be a little more popular now. Don’t worry – you can still be successful without taking credit for government benefits or advertising in a misleading way. But, you will have to actually solve student loan problems and play by the rules that the CFPB is laying out. That’s the hard truth on what it will take for student debt relief companies to adapt and survive. It’s time they gave up on the tired old upfront-fee debt settlement model and realized that student loan situations are far too complex for one-size fits all solutions.

Also, if you’re a student loan borrower looking or help, make sure to check out my free Federal Student Loan Ebook, you may find the answers to your student loan problem there!

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About Andrew Weber, NACCC Certified Student Loan Counselor

Andrew Weber is a NACCC Certified Credit Counselor and a NACCC Certified Student Loan Counselor. He is the only certified student loan Counselor who specializes exclusively on private student loan issues in the US. He's helped hundreds of borrowers drastically reduce their debts.

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