Looking to refinance your student loans? Be wary of fraudulent, unnecessary charges

Washington state Attorney General Bob Ferguson speaks to The Olympian editorial board Jan. 19, 2016
Washington state Attorney General Bob Ferguson speaks to The Olympian editorial board Jan. 19, 2016 sbloom@theolympian.com

Fifteen loan-adjustment companies are no longer operating in Washington state after charging student-loan debtors unlawful fees for refinancing services that are supposed to be free, according to the state attorney general’s office.

Attorney General Bob Ferguson announced earlier this month his office has recovered more than $1.2 million in restitution for 1,600 consumers from the companies through lawsuits and settlements.

The companies violated the state Debt Adjustment and Consumer Protection acts, Ferguson’s office said.

Of that $1.2 million, more than $18,000 went back to 22 Whatcom County residents, said John Nelson, an assistant attorney general in the office’s Consumer Protection Division.

The AG’s office began investigating in 2014, after receiving a “critical mass” of complaints from debtors, Nelson said.

“The common thing was they had these epiphanies,” he said. “At some point after consolidating, they realized that not a dollar of any amount they paid to these debt-adjustment firms went to paying down their loans.”

The companies would buy students’ financial and contact information through a process called lead generation, Nelson said. Lead generation firms gather that data, which includes people’s assets or debt, often from online forums or applications consumers fill out themselves. The firms then sell that information to companies like those in the lawsuits.

At its core what they’re doing is taking that income information and inputting all that data into the same online portal that you could’ve done, then charging you money for it.

John Nelson, assistant state attorney general

Armed with that information, the companies would then resort to aggressive telemarketing, outreach via mail or email and flashy websites to get students to consolidate their loans. They would often tell students they could save exorbitant amounts on their loans, or that they could have their loans forgiven – something few students actually qualify for, Nelson said.

Everything in the process, the companies would often say, could be done at an upfront cost usually between $200 and $1,000, the AG’s office said. Under Washington’s Debt Adjustment Act, a loan adjuster cannot charge more than $25 upfront for its services.

On top of those fees, the companies also often charged debtors monthly “monitoring” fees above the legal limit without clarifying that the fees would last for the life of the loan, Ferguson’s office said.

All of those charges were for the same services debtors can get through the U.S. Department of Education for free, Nelson said.

“At its core what they’re doing is taking that income information and inputting all that data into the same online portal that you could’ve done, then charging you money for it,” Nelson said. “We had a paralegal when (the investigation) was going on who sat down on her lunch break and consolidated her loans in five minutes.”

Ferguson’s office began its sweep of lawsuits and settlements in November 2015, Nelson said. Most companies were based in California and Florida and operated call centers elsewhere, like Texas. In addition to the restitution, the companies also paid more than $200,000 to cover the cost of the investigation, Nelson said.

The investigation was a civil case, meaning the restitution won’t come with time behind bars for the companies’ executives, Nelson said. The attorney general’s office did not have criminal jurisdiction in these cases.

“It’s fair game to say a violation of the Debt Adjustment Act is a misdemeanor,” he said. “But our focus is always on making folks stop (scams like these) and to get money back for consumers.”

To keep these scams from recurring, Ferguson proposed legislation in both Washington’s Senate and House of Representatives that would require colleges to provide detailed information to students about their loans within a month after disbursement. The idea behind the legislation, Ferguson’s office said, is to help improve students’ understanding of their loans.

Rep. Luanne Van Werven, R-Lynden, is one of 14 legislators sponsoring the House bill.

Anyone considering consolidating their loans should start with resources on Federal Student Aid’s website, at studentaid.gov, Nelson said. Most loan servicers provide help for free.

If borrowers still need help, the next stop, he said, is nonprofit consolidators. Many for-profit consolidators, Nelson added, are legitimate. But borrowers should always ask for copies of a contract, he said, and shy away from companies who aren’t willing to send documents for inspection.

Perhaps the easiest way to spot a scam, at least in Washington, is the amount a consolidator asks upfront, Nelson said. Any price beyond $25 is unlawful.

“The general advice,” Nelson added, “is, if you can, do it yourself for free.”

Kyle Mittan: 360-756-2803, @KyleMittan

Avoid refinancing scams

▪ Be wary of any offers to refinance your loans for a fee; those services can be completed by your loan servicer for free.

▪ In Washington state, any upfront fees greater than $25 are illegal.

▪ Call Federal Student Aid directly before sending money to anyone.

▪ If you’re considering refinancing and still need help, consider using a nonprofit loan adjuster. Examples are Great Lakes Higher Education Corporation & Affiliates and CornerStone Education Loan Services.

▪ Many for-profit servicers are legitimate. Federal Student Aid provides a list of federal loan servicers on its website, studentaid.gov.

Sources: John Nelson and Federal Student Aid