student loan scams
Updated September 30, 2021

7 Common Student Loan Scams and How to Avoid Them

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Student loan debt is at an all-time high, with the current student loan debt burden in the United States at over $1.5 trillion. With that much outstanding debt, there has been a drastic increase in the number of student loan scams targeting students and graduates alike.

Borrowers that are behind on payments or that are in default are most often the targets of these scams, which offer too-good-to-be-true offers to get them back on track or even completely rid them of student loan debt.

If you’re struggling to make payments, you may have been contacted by a student loan scammer looking to get money or personal information from you. Whether you’ve fallen victim to a scam or you’re just starting to make your student loan payments, it’s always important to be aware of scams that can cost you thousands of dollars or can lead to identity theft.

To help you navigate your student loan repayment options, here are seven common student loan scams and how to avoid them.

1. Upfront Fees

One of the most common student loan scams that borrowers face is the promise of a great interest rate by paying an upfront fee to the lender. Typically, the fee can be upwards of 5% or more of the total loan amount, which can be hundreds, if not thousands of dollars.

In other instances, they may make the offer for a flat fee, which may be well over 5% of the total loan amount. If you’re approached with an offer for a great interest rate by paying a fee, walk away immediately. There are zero legitimate student loan options out there that require you to pay a fee, and a lender that requires an upfront fee in order to secure the student loan’s rate is a sure sign of a scam.

While there may very well be fees associated with your loan, those fees are never required to be paid out of pocket before securing your loan. Instead, the fees are typically rolled up into the total amount of your loan and disbursed over the life of the loan. The cost of fees depends on the type of loan that you get, either federal or private, and who the loan loan provider is for your private loans.

Pro tip: There are some third-party companies that assist borrowers with securing refinanced loans that may require a fee, but we suggest avoiding those programs if possible.

2. Consolidation Student Loan Scams

Depending on your financial situation, loan consolidation may be right for you. When you consolidate your loans, you’re taking multiple smaller loans and consolidating them into one larger loan, with the interest rate set at the average interest rate of all of your consolidated loans.

Scammers often target students looking to consolidate loans after graduation, so it’s important to understand your student loan consolidation options.

You can consolidate your federal student loans for free, and you can complete the process entirely online. If you come across a consolidation offer that requires you to pay a fee, it’s absolutely a scam.

If you want to consolidate your private student loans, it would actually be considered a refinance. There are tons of reputable lenders that offer refinance loans at competitive interest rates, and we’ll go over how to find the right lenders for you later in this post.

3. Default Loan Repair Fees

Another one of the most common student loan scams targets borrowers in default. With over a million borrowers expected to default on their student loans every year, this scam is becoming increasingly common. This scam promises to fix your student loan default status for a small fee.

The best thing to do to fix your student loan default status is to work directly with your lender or collection agency that took your loans over.

Good to know: You should never have to pay a fee to explore relief options, and your lenders are actually required to work with you on solutions. You may have the option to consolidate your loans in default to help you manage your payments, or you may be able to enter a rehabilitation period where you make regular payments over a set period of time to get your loan out of default.

4. Loan Discharge Scams

If you see a promise to get your student loans discharged for a small fee, the offer is definitely too good to be true. Be wary of these student loan scams, as they often draw in students who are in need of a way out of their loans.

While we all wish we could pay a fee and have our student loans magically disappear, the reality is that student loans just don’t work like that. Your student loans are required to be repaid, unless one of a few very specific things happen (death, identity theft, forged loan documents, school closure, or disability).

Good to know: When borrowers get desperate, they often turn to promises of debt relief, which often end up being scams that cost thousands of dollars and still leave the borrower with the same debt load. If you do go into default, there are still options. While the consequences may be severe, there are ways to recover and build your financial future.

5. Fake Debt Relief Programs

Similar to loan discharge scams, debt relief scams often charge a fee with the promise to lower your debt and restructure your loans at lower interest rates. Other scam relief programs may offer student loan forgiveness programs that don’t actually exist, requiring borrowers to pay a fee or give up sensitive personal information.

Always do diligent research before signing up for a student loan forgiveness program. Only federal loans are eligible for student loan forgiveness programs and require borrowers to work in a specific field or meet other criteria.

Pro tip: Keep in mind that you are never required to pay an upfront fee to enroll in a student loan forgiveness program, and all student loan forgiveness programs are administered by the Department of Education.

6. Lawsuit Scams

You may have seen recent news articles showing that large student loan providers are being sued by borrowers and state agencies.

While that is certainly true, and there is an increase in legitimate cases against providers, there are scam artists fronting as attorneys that promise to include your information in a major lawsuit to either reduce or completely eliminate your student loan debt.

These scammers typically require a large upfront payment, claiming they need it to negotiate with your lender for a one-time payment settlement. What actually happens is your money is taken and there’s no negotiation with your lender, leading you to delinquency, forbearance, and severe financial consequences.

7. Steering Toward Forbearance

While not necessarily a scam, there are major student loan providers that are under investigation for improperly guiding borrowers toward forbearance instead of other repayment options. Forbearance should only be used as a last resort to stop payments, as interest continues to accrue in the forbearance period.

Federal student loans provide borrowers with quite a few options for repayment, and depending on your income, you may be able to significantly reduce your monthly payment amount.

Income-Driven Repayment plans are very popular repayment options for federal loans, basing your payments on your discretionary income and lengthening your repayment period. Typically, if your income qualifies and you make all of your payments on time, any balance left over at the end of the repayment period may be discharged.

Pro tip: If your lender is pushing for you to go into forbearance on your federal student loans, it may be a sign that they aren’t working with your financial needs in mind.

Getting the Best Student Loan Rates

With so many options out there for new student loans and student loan refinancing, it can be difficult to know which lender is right for you. Add to that the countless scams that are only becoming more common. It’s extremely important to connect with safe, legitimate lenders that have your best interests at heart.

Fortunately, there are a few great tools that you can use to not only find the right student loan option for you, but also provide you with fantastic resources for managing and paying back your student loans. Here are our top picks to help students find the right lenders for their needs.


As one of the leading student loan refinancing sites available today, LendEDU matches borrowers with personalized rates at various lenders. Here are some of the benefits of working with LendEdu:

  • You can get personalized rates in just minutes for new student loans, refinanced student loans, and even personal loans and credit cards.
  • It takes just a few minutes to sign up for LendEDU. Simply enter your general financial information to get personalized results on your loan origination interest rates as well as your refinance rates.
  • LendEDU’s network of lenders offers extremely competitive interest rates, as low as 2.46% for variable interest options and as low as 3.09% for fixed-rate loans. With interest rates this low, you can significantly reduce your monthly payment and reduce the overall amount you owe over the life of your loan.

Pro tip: If you don’t have great credit, LendEDU has specialized loan products that are designed to help borrowers obtain student loans without a cosigner. Not only will you be connected with accurate and competitive interest rates with multiple lenders, but you’ll also have access to tons of great financial tools and resources to help you manage your student loans.


Credible is another fantastic resource that will match you with up to eight lenders, allowing you to get the best rates possible for your student loans. Whether you’re looking to take out a new loan or refinance your existing ones, Credible’s network of lenders has just what you need. With Credible, you can:

  • Choose from private loan refinancing, federal loan refinancing, taking on new loans, or even mortgages and credit cards.
  • Get matched with lenders offering personalized rates without needing to enter your sensitive information first. This is a great way to check your rates before committing to a hard credit check.
  • Get started in just a few minutes and you’ll get instant results when you enter your information, meaning you can take out new loans or refinance your existing ones and start saving money in no time. You can always review current partner lender rates before you even sign up.

The transparency of the site and lenders make Credible one of the most trusted student loan resources available today.

Interest rates are as low as 2.47%, which is one of the lowest interest rates on the market. You’ll also have the freedom to choose your repayment period, from as few as five years to as many as 20 years.

Check your rates without impacting your credit score, and if you like what you see, you can continue with your full loan application right from the Credible website.

Good to know: The rates are real and personalized to your financial information, not generalized and presented in a range like on some other sites. Credible also has a live support team that can answer any of your student loan questions or concerns.


Our final resource that you should definitely consider to get the best rates on your new student loan or your refinanced student loan is LendKey. Here are a few reasons why you should choose their services:

  • LendKey works just like our previous two suggestions, but connects you with local banks and credit unions to get you the best interest rates possible. Local banks and credit unions are known not only for their exceptional customer service and personalized interactions, but also their competitive interest rates on financial products.
  • When you enter your information on the LendKey site, you’ll get instant rates without impacting your credit score. You’ll be connected with multiple lenders in your area, allowing you to pick and choose the right loan product for you.
  • Rates start at 2.57%, making LendKey a top choice for borrowers looking to save significantly on their student loan interest.
  • You can also choose how long your repayment period is, giving you the power to take control of your student loans.

Good to know: LendKey also connects borrowers in need of home improvement loans. Just like our previous entries, there are tons of great resources that you can use to help you manage your student loan debt and pay off your student loans faster.

Student Loan Scams: The Bottom Line

When it comes to student loans, there are a lot of scams out there that are trying to take your money and personal information. Most legitimate student loan providers and assistance programs do not require an upfront fee, and if they do, you should exercise extreme caution before proceeding.

There are tons of protections in place for student borrowers, and if you have federal student loans, you have the option to explore various payment plans and potential forgiveness options without having to pay a fee.

Private student loans can easily be refinanced into loans with lower interest rates and better payment terms, and when you go through legitimate services such as Credible, LendEDU, and LendKey, you can rest assured that your information is safe and you’re going through a safe process.

Have you or someone you know fallen victim to a scam? Connect with other readers by sharing your experience in the comments below.


Logan Allec, CPA

Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.

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