3 ways to spot student loan scams

© iordani/Shutterstock   College student sits on steps while studying.

By Michelle Black, Bankrate

Financing an education isn't cheap. College tuition and fees commonly cost between $10,000 (public, in-state schools) and nearly $37,000 (private universities) per year. According to Experian, the average student loan borrower owes a sizable $35,359 in educational debt.

With figures like these, it's no surprise that many student loan borrowers find themselves struggling to repay their debt. Unfortunately, people with bad intentions understand these troubling facts as well. There's no shortage of student loan scams designed to prey upon those who need relief from unmanageable student loan debt. To avoid student loan scams, keep an eye out for these three things:

1. Upfront or monthly fees.

2. Power of attorney or FSA ID requirements.

3. Promises of instant loan forgiveness.

Both the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) have sued numerous dishonest student loan debt relief companies in recent years. But this doesn't mean that every company offering student loan relief services is a bad actor. It is, however, important to know the warning signs of a scam so you don't become a victim.

Below are three tips that will help you learn how to spot student loan scams.

It's not unusual for a business to charge fees for its services - including student loan debt relief. But if a company tries to charge you advance fees before it actually consolidates your loans, settles your debt or lowers your payments, that's illegal.

There's nothing a debt relief company can do for you that you can't do for yourself. With or without professional help, you have the right to:

• Discuss options to get your loans out of default.

Of course, there's nothing wrong with paying for a service that takes care of something you want to handle on your own. Many people pay others to settle their debts, repair their credit or file their taxes instead of going with the DIY approach. But if you work with a student loan debt relief company, make sure you're comfortable paying someone else hundreds or even thousands of dollars to manage a free (albeit potentially time consuming) process on your behalf.

Takeaway: Upfront fees, especially before you receive a service that you could realistically manage on your own, may be a sign of a scam. The U.S. Department of Education provides a free Federal Student Aid website to help you discover your options when it comes to federal student loans. You can use the website to review repayment strategies (including potentially lower payments), learn about loan forgiveness and understand your choices if you're having trouble making payments.

A legitimate company may need some of your personal information to help you with your student loans. But if a student loan relief company requests your Federal Student Aid ID (FSA ID) password or asks you to sign a power of attorney agreement, it's a red flag.

With your FSA ID or a power of attorney, you're giving a company permission to legally make changes to your student loan agreement - including new payment arrangements. It takes you out of the driver's seat and puts someone else in control of your account. Worse yet, if a debt relief company collects money to pay your student loans but then doesn't keep its word, you'll still be on the hook with your student loan servicer for those payments, plus any late fees or interest you owe.

Takeaway: Your FSA ID password is private and should remain that way. It's also best to avoid signing a power of attorney that gives someone else the power to act on your behalf. If you've already signed a POA or shared your FSA ID, reach out to your student loan servicer to revoke third-party authorization agreements on your account. You can log into your account with StudentAid.gov to change your FSA ID or password.

There are legitimate federal and state programs that offer to reduce or forgive student loans for certain borrowers. Public Service Loan Forgiveness is one example. But the truth is that it takes eligible borrowers years to qualify for most government student loan forgiveness programs.

A student loan relief company that offers immediate student loan forgiveness or is overly enthusiastic about your chances of qualifying for such programs may be trying to take advantage of you. You should be especially concerned about big promises if they come from a salesperson who is pressuring you to sign up for a service or provide your payment information.

Takeaway: Don't fall for unrealistic promises from student loan relief companies that charge fees to represent you. You can review the different types of student loan forgiveness, cancellation and discharge available at StudentAid.gov. You can also contact your loan servicer for more information and to see if you qualify for a specific program.

Student loan scams can cause lasting financial problems and sometimes credit damage, too. It's critical to learn how to avoid student loan scams yourself. You should also report any suspicious characters you come across to the FTC, CFPB and your state attorney general. By reporting potential scams, you might protect someone else from becoming a scam artist's next victim.

If you need help with your student loans, be sure to thoroughly vet any company you're considering. Remember the warning signs above, like advance fees, as you review and compare different possibilities. You can also consider contacting the National Foundation for Credit Counseling to find an NFCC-certified student loan counselor.

See more at: Bankrate