BBB Scam Alert: Be Wary of Student Debt Forgiveness Scams

Graduation cap next to a jar of money for student debt

If you get a call, email or letter about student loan debt forgiveness, think twice before you share any of your personal information. It could be a scam.

Millions of people in the United States are under financial pressure due to student debt, and the Coronavirus pandemic has only exacerbated the situation. Unfortunately, scammers are seizing the opportunity to exploit these people.

According to student loan debt statistics, 43.2 million student borrowers are in debt at an average of $39,351 each. Student loan debt in the United States totals $1.73 trillion and grows six times faster than the nation’s economy.

The Coronavirus outbreak and subsequent legislation to assist consumers have opened the door for scammers to prey on people desperate for assistance.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) has allotted $2.2 trillion in aid to people negatively impacted by the COVID-19 pandemic. Of that money, about $14 billion was for the Higher Education Emergency Relief Fund (HEERF).

Many student borrowers are confused by or not familiar with the relief funds available to them, or don’t know how to apply. This makes them an ideal target for scammers pretending to work for a legitimate organization that can help them obtain debt relief or even debt forgiveness.

“You never have to pay for help with your federal financial aid or student loans. Make sure you understand which companies and claims are legitimate.”

– Federal Student Aid

How to Identify a Student Loan Debt Forgiveness Scam

There are two types of companies offering assistance to people with student loan debt, namely:

i). Financial aid advice services.

Many companies offer financial aid advice and charge hundreds of dollars, or more, for their services, such as helping you complete an application for debt relief or debt forgiveness.

However, charging for information that’s available for free elsewhere or helping you complete a form that you can do yourself isn’t fraudulent, only a waste of money.

ii). Promises debt relief or forgiveness for a fee.

A company that charges you money for financial aid but doesn’t or can’t deliver what it promises is a scam.

Signs a student loan debt relief company is a scam

Here are some red flags to look for from Federal Student Aid, a part of the U.S. Department of Education and the largest provider of student financial aid in the nation.

  • They require you to pay up-front or monthly fees for help – It’s illegal to charge an up-front fee for this type of service, so if a company requires a fee before it actually does anything, that’s a huge red flag.


  • They promise immediate and total loan forgiveness or cancellation – No one can promise immediate and total loan forgiveness or cancellation. Payment levels under income-driven payment plans are set by federal law.


  • They ask for your FSA ID username and password – ED or its partners will never ask you for your FSA ID password. If a company has access to your FSA ID information, they can make changes to your account without your permission.


  • They ask you to sign and submit a third-party authorization form or a power of attorney – Debt relief companies often want these authorizations so that they can change your account and contact information, so you don’t realize that they aren’t actually paying your monthly student loan bill.


  • They claim that their offer is limited and urge you to act immediately – Student loan debt relief companies often try to instill a sense of urgency by citing “new laws” or discontinuing programs as a way to encourage borrowers to contact them immediately.


  • Their communications contain spelling and grammatical errors – While many of the communications sent out by these companies look very formal (for example, fold-and-tear letters with safety patterns), they often contain spelling and grammatical errors.


If you’re looking for financial aid, fill out the free FAFSA form to apply. Never pay anyone to fill out or process your FAFSA. It’s probably a scam. (FAFSA stands for Free Application for Federal Student Aid, and it’s the only way to apply for federal student aid)

If you are employed by a U.S. federal, state, local or tribal government or not-for-profit organization, you might be eligible for the Public Service Loan Forgiveness Program (PSLF).

Where to Report Student Debt Scams


If scammers have your social security number and other personal information, it can lead to identity theft. Report identity theft to the FTC.

If you’re in California, you may file a complaint under the California Consumer Financial Protection Law (CCFPL) that empowers the Department of Financial Protection and Innovation DFPI to protect California consumers from pandemic-inspired scams.

The Better Business Bureau has resources to help consumers and businesses. You can report a scam (whether you’ve lost money or not), file a complaint against a business, leave a review of a business you’ve used and report an ad.

Visit our blog for more tips and scam alerts.

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