Student Loan Trend Watch: Scam Relief and New Forgiveness

For those hit by fraudulent student debt relief scams there is good news: Refunds are coming. Other developments in the world of federal student loans include fixes to the Public Service Loan Forgiveness program, and a crackdown on hidden “junk fees”.

Relief for Victims of Student Loan Scams

The Federal Trade Commission is sending more than $4.1 million in refunds to people who lost money to student loan debt relief scammers. The scammers — including Mission Hills Federal, Federal Direct Group, National Secure Processing, and The Student Loan Group — lured consumers by pretending to be affiliated with the Department of Education, offering debt forgiveness on websites and in email solicitations. The FTC is sending checks to 27,584 consumers.

Here’s how the scams worked: Promising to lower consumers’ student loan payments, the scammers tricked people into paying upfront fees and sending their monthly student loan payments directly to the fraudulent companies.

In related news, to protect loan holders from scams and phishing, the Department of Education’s Federal Student Aid office recently stated that they are streamlining the online payment process . Later this year, people will have one login that works for both their servicer’s website and the government’s studentaid.gov account. Also, all federal loan servicer websites and email addresses will change from .com to .gov.

More Forgiveness Announced

The Biden administration this week announced some $5.8 billion in additional student loan debt relief for 77,700 borrowers. These approvals for loan relief are the result of fixes made to the Public Service Loan Forgiveness (PSLF) program, which eliminates loans paid by teachers, nurses, social workers, firefighters, and other public servants who qualify. On a per-person basis, the forgiveness amount averages out to about $77,000.

The PSLF program was established in 2007 but was notoriously difficult to apply for and only few won approval. Fixing it became a priority in the last several years. President Joe Biden said he would email an additional 380,000 public service workers, notifying them they are on track to have their debt canceled through PSLF within two years.

Eliminating ‘Junk Fees’ on Federal Loans

Few private lenders include origination fees on student loans, but the federal government still charges them. They can range from 1% to 4% of the total amount borrowed, but that could be changing.

President Biden’s 2025 budget calls for the end of these charges , which he referred to as “hidden junk fees”.

“These fees are a relic of an era when the government compensated private lenders to issue these loans,” President Biden said in a statement.

Around 7 million undergraduate, graduate, and parent student-loan borrowers currently pay origination fees.

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