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1.12.4 Potential Problems with For-Profit Counselors

There is a growing industry of for-profit companies claiming to help student loan borrowers stay out of default and successfully repay student loans.

NCLC issued a report in June 2013 highlighting numerous troubling trends in the for-profit student loan “debt relief” industry.354 Following the report, the CFPB issued a consumer advisory emphasizing that borrowers do not have to pay someone to help with student loans. The CFPB stressed that enrollment in alternative repayment plans, like IBR, is available at no cost; debt relief companies do not have the ability to negotiate with creditors in order to obtain special deals because payments levels under IBR and other federal income-driven repayment plans are set by federal law, and claims by companies to the contrary may be misleading and potentially a violation of law.355

Recently, states and federal regulators have begun filing suits against student loan “debt relief” companies. For example, the Illinois Attorney General sued several of these companies in 2014 and 2015, alleging violations of state consumer protection and other laws.356 In January 2015, the CFPB and the Florida Attorney General obtained a stipulated order in a case against College Education Services providing for monetary penalties and injunctive relief.357 In January 2017, Washington’s Attorney General announced that it had recovered more than $1.2 million after bringing legal action or resolving allegations against fifteen out-of-state companies for violating Washington’s Debt Adjustment Act and Consumer Protection Act. These companies are now barred from conducting business in the state of Washington.358 In March 2017, the Attorney General of North Carolina obtained an injunction against a number of debt relief entities that were alleged to have collectively “engaged in a scheme offering illegal debt adjusting services and unauthorized legal services to North Carolina consumers in violation of the statutes prohibiting debt adjusting, the unauthorized practice of law, and unfair and deceptive trade practices.”359 In April 2017, the Massachusetts Attorney General obtained a settlement that will provide refunds to eighteen affected student loan borrowers from a student loan “debt relief” company that allegedly charged illegal fees to Massachusetts borrowers. The $6500 in refunds obtained in that case will bring the Massachusetts Attorney General’s total recovery to more than $260,000, as this latest settlement is the fourth in a series of actions that have been brought in the last several years.360

In June 2015, the CFPB sent letters to several search engine providers to alert them that their products were potentially being used by student loan debt relief scammers. In 2016, the CFPB took action to bring an end to a company’s scam that tricked borrowers into paying fees for federal loan benefits and misrepresented that it was affiliated with the Department of Education. As a result of this action, Student Aid Institute, Inc. and its CEO were ordered to pay penalties, cease debt relief activities, and cease charging customers affected by the scheme.361 Also in 2016, the Federal Trade Commission (FTC) and the state of Florida took action against two entities—Consumer Assistance Project and Student Aid Center Inc.—that had been charged with operating student loan debt relief scams.362 In a separate matter, the FTC settled with the perpetrators of another debt relief scheme in which consumers were charged upfront fees for sham promises to renegotiate, settle, or modify payment terms on student loan debt.363 In January 2017, the CFPB filed a complaint alleging that a group of law firms and attorneys collaborated to charge consumers millions of dollars in illegal debt relief fees.364

In October 2017, the FTC—along with eleven states365 and the District of Columbia—announced the launch of “the first coordinated federal-state law enforcement initiative targeting deceptive student loan debt relief scams.” This initiative, dubbed “Operation Game of Loans,” initially involved a total of thirty-six enforcement actions “against scammers alleged to have used deception and false promises of relief to take more than $95 million in illegal upfront fees from American consumers over a number of years.”366 In five actions involving thirty defendants, the FTC obtained temporary restraining orders in the fall of 2017,367 thereby freezing the offending parties’ assets and bringing the scams to a halt. In March 2018, the FTC filed an action alleging that an operation deceived borrowers into paying over $28 million as part of a debt relief scam.368 In May 2018, the FTC announced two settlements that were reached as a result of the “Operation Game of Loans” initiative.369 In June 2018, the FTC announced another such settlement, including a monetary judgment of $11,694,347.49.370

In some cases, “debt relief” counselors appear to act mainly as brokers, claiming that they can help arrange loan consolidation for a borrower. The companies may require the borrower to sign a statement indicating awareness that these sources may be available without the use of the company’s services but that the borrower has determined it is in his or her best interest to hire the company. Generally, these companies make no guarantees. In some cases, they will assist only with federal loans, and in some cases they will not assist borrowers if their loans were previously in default.

These companies often charge high fees. In many cases, they are only offering to do work that the borrower can do on his or her own. Despite disclaimers to the contrary, these non-attorney counselors may very well be crossing over the line and engaging in the unauthorized practice of law.371 Many pressure borrowers to provide FSA IDs.

There is also a thriving business of “default management” companies hired by schools to track down former students and get them into forbearances or other programs that will not impact the school’s default rates and help them avoid sanctions.372

Default management and debt relief companies often use lead generators to get business. In a June 2010 lawsuit, a for-profit financial aid website company sued a lead generator for allegedly failing to provide quality leads.373 The lead generator was supposed to provide the company with names of qualified individuals to solicit for student loan consolidations.