Student loans may be difficult to discharge in a New York bankruptcy case, but debtors might still need to file if they pay the exorbitant fees charged by student-loan debt-relief companies. It’s been a few years since these outfits were in the news, likely because debtors have become more knowledgeable about income-derived repayment (IDR) options. Nevertheless, on September 20 the New York Attorney General’s office sued twelve student-loan debt-relief companies for deceptive practices aimed at debtors. Here are some of the tactics these companies used, along with suggestions so debtors know to avoid them.
- Claiming they were affiliated with the federal government and offering to help student debtors with their payments. Debtors can avoid these companies by simply going to the Department of Education’s Web site instead, which outlines student-loan repayment options for free.
- Charging fees to debtors and dishonestly claiming that they would send those fees to their lenders. This tactic is common to many debt-relief debt scams: pay us instead of your creditors and we’ll help negotiate with them to reduce your payments. Essentially, the goal is to play middleman for doing less than nothing.
- Charging debtors for applying for loan consolidation or signing up for IDR plans. These options are free to debtors, so paying someone to do it for them is a waste of money.
- Holding themselves out as “loan experts,” even though they are not, and then charging up to $1,000 for what was often bad advice. Debtors can get free, accurate advice from the Department of Education.
- Advising debtors to consolidate their loans when doing so might cost them the opportunity to cancel their debts via an IDR plan. Some consolidation loans are not eligible for IDR plans or Public-Service Loan Forgiveness, which cancels student loans after ten years if debtors work in the public or nonprofit sectors.
- Demanding illegal upfront fees of between $100 and $450 to apply for benefits and consolidation from the federal government. Again, this can be done for free.
- Lending money to students at usurious interest rates (20 percent) to help pay for debt relief services. It’s almost always a bad idea to go greater into debt to repay debt, but debtors should never agree to rates this high.
The full complaint against the companies is here (pdf).
If you are struggling with student-loan debt, then talking to a debt-relief or debt-settlement company will only worsen your situation, and you may need to file bankruptcy anyway. Otherwise, there are many resources for trying to reduce student-loan debt, but the key is that they’re free. Here’s a link to the Department of Education’s Web site that discusses how to repay your student loans.
If you’re struggling with education debt, then discussing it with a New York bankruptcy lawyer may help because discharging some debts can free payments for the student loans, and a chapter 13 filing can cap the interest on arrearages.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy lawyer Brooklyn NY Bruce Weiner for a free initial consultation.
