Feds point fingers as ‘debt relief’ cos. prey on students
their payments, driving them into the arms of dishonest companies, critics say.
The CFPB is suing Navient Corp., accusing the servicer of profiting by leaving borrowers in expensive payment plans, an allegation the company denies.
Consumer advocates say that if the Education Department made loan-servicing companies steer people into affordable payment plans, desperate borrowers wouldn’t fall for debt relief scams.
“The fact that these ‘debt relief’ companies continue to exist and operate is just a travesty,” said Persis Yu, who runs a program to help student loan borrowers at the National Consumer Law Center. “The Department of Education needs to get servicing under control, because improving servicing is one very important way to turn off the spigot that lets the scams operate.”
At $1.4 trillion, student loans today trail only home mortgages as a source of personal debt, exceeding credit cards and auto borrowing. One of five U.S. households has a student loan and for many, the burden is onerous.
Millions of borrowers have fallen into delinquency or default, unable to make monthly payments that are often higher than lenders approve for mortgages.
Desperate, they turn to phony debt relief companies that hype promises of lower payments or loan forgiveness.
“They try to take advantage of desperation,” says Janna Champagne, a chronically ill Oregon nurse who owed more than $150,000. She paid for help from a company called Debt Relief Pros Inc., but says “they made all kinds of promises they couldn’t keep.”
At best, companies simply collect customers’ money and enroll borrowers in federal programs available for free on government websites.
The worst offenders gain power of attorney, IDs and passwords to access loan accounts — and let them lapse. As a result, money that should be flowing to U.S. taxpayers in the For local news visit form of loan payments instead is siphoned away by illicit operations.
A team of NerdWallet researchers and reporters examined the student debt relief industry, conducting a federal and 50-state review of court records and other public documents.
The records show that a handful of aggressive attorneys general — notably, those in Washington and Illinois — have shut down the largest number of student-debt companies barred from doing business in individual states.
“There’s definitely a Whac-AMole problem, which is why the servicer element is so important,” said Lisa Donner, executive director of Americans for Financial Reform.
To help consumers, NerdWallet has launched a first-of-its-kind NerdWallet Student Loan Watch List made up of web pages on more than 130 businesses, warning borrowers to beware.
The company that took Champagne’s money made the list because Oregon banned it from operating any debt relief business in the state.
Washington state ordered the company to make refunds to borrowers there. But across the country, state officials say they’re constricted and outgunned.
“A national solution is the best way to confront this problem,” said Shannon Smith, Washington state consumer protection division chief. Smith’s agency has taken a leading enforcement role nationally with just two attorneys working parttime on debt relief scams.
The attorney general’s press secretary in Florida, a hotbed for national call centers hawking student loan relief, says the rackets swamp federal and state agencies.
“Unfortunately there are more than enough scams to go around the various enforcement agencies,” said press aide Kylie Mason. “We will continue to work together and independently to do whatever we can to shut down these fraudulent schemes as quickly and effectively as possible.
www.ivpressonline.com