- The FTC said two companies cheated student-loan borrowers out of $12 million.
- It accused the companies of lying about repayment programs and debt relief that did not exist.
A federal watchdog just cracked down on two companies over accusations of lying to student-loan borrowers and scamming them out of millions of dollars.
On Monday, the Federal Trade Commission announced that it had stopped two "student loan debt relief schemes," accusing the companies of cheating borrowers out of approximately $12 million by making deceptive claims about repayment plans and "loan forgiveness that did not exist," according to the press release.
According to the FTC's complaint filed in California last month, SL Finance LLC, and BCO Consulting Services Inc. and SLA Consulting Services Inc. allegedly lured borrowers — many of whom were low-income with up to six figures in student debt — into paying hundreds of thousands of dollars in illegal fees by tricking the borrowers into thinking they were enrolling in a legitimate repayment program. The companies also allegedly told some borrowers that their loans would be forgiven, per the complaint, and that the payments those borrowers were making would be applied to their loan balances.
"In reality, the defendants were pocketing students' payments," the press release said.
The FTC also accused the companies of falsely claiming to be representatives of the Education Department, saying that they would take over servicing the targeted borrowers' loans. Last week, a federal judge put temporary restraining orders on the companies as the court considers the cases.
"As Americans struggle with massive student loan debt and uncertainty around the prospect of forgiveness, scammers are looking to cash in," Samuel Levine, Director of FTC's Bureau of Consumer Protection, said in a statement. "These lawsuits to shut down student loan debt relief schemes continue the agency's crackdown on junk fees, unwanted calls, and financial exploitation."
Since President Joe Biden announced his plan to cancel up to $20,000 in student debt for federal borrowers in August, the Education Department has been warning borrowers of scammers that could be looking to take advantage of the relief. In October, the department released guidance for borrowers on best practices to avoid scams, and it reiterated the borrowers should never have to pay anything for federal debt relief programs.
Along with the FTC's latest action, the Consumer Financial Protection Bureau has also cracked down on fraudulent behavior targeting student-loan borrowers over the past months. For example, the bureau announced in December that 23,000 borrowers would be receiving checks in the mail after it found that five companies were illegally charging debt relief fees and misrepresenting interest rates.
Scams could likely rise later this year with student-loan payments expected to resume 60 days after June 30 or 60 days after the Supreme Court issues a final decision on the legality of the relief. The Education Department is in the process of improving the student-loan servicing system and making it easier for borrowers, and as the White House said in October, "one of the most critical ways to prevent scams and protect borrowers from being taken advantage of is developing a clear, simple, and secure site for borrowers to apply for debt relief and have the most up to date information from trusted sources, such as the Department of Education, Federal Student Aid, and other Administration agencies."