More than 130 student loan debt relief businesses continue to attract clients although federal investigators have found that their practices are questionable or illegal.
U.S. enforcement agencies, such as the Consumer Financial Protection Bureau and the Federal Trade Commission, have closed only seven companies in recent years after finding that the firms had assured consumers that they could have their student loan debt reduced or forgiven. Some of these companies have charged illegal upfront fees and monthly dues for debt consolidation, and then hijacked debtors’ accounts and let payments lapse, leading to garnished wages, seized tax refunds and ruined credit.
According to the ratings website NerdWallet—which surveyed state and federal records to study the student loan industry and regulations—state prosecutors have closed almost three dozen companies around the country, but many more remain.
“The fact that these ‘debt relief’ companies continue to exist and operate is just a travesty,” said Persis Yu, who runs a program to help student loan borrowers at the National Consumer Law Center. “The Department of Education needs to get servicing under control, because improving servicing is one very important way to turn off the spigot that lets the scams operate.”
The student loan industry today is worth about $1.4 trillion and student loans almost equal home mortgages in terms of personal debt. They exceed credit card debt and car loans.