Minnesota just shut down a student-loan forgiveness company accused of illegally taking money from borrowers for services they could've gotten for free

• Minnesota shut down student-debt relief company Direct Account Management over fraudulent behavior.
• It accused the company of illegally taking money from borrowers for services that are otherwise free.

Minnesota just shut down a student-loan forgiveness company after finding it was accused of illegally taking money from borrowers.

On Tuesday, Minnesota Attorney General Keith Ellison announced his office reached a settlement that requires California-based student-debt relief company, Direct Account Management, to cease its operations in the state and pay back $20,063.12 — the full amount it collected from Minnesota borrowers. This marks the 13th time Ellison has shut down a student-debt relief company in the state over fraudulent behavior.

According to the press release, the company falsely promised debt relief to consumers when that power only lies within the federal government, and it "pocketed exorbitant fees to enroll consumers in federal repayment programs that consumers can enroll themselves in for free." It sometimes used the name Student Loan Advisory to communicate with borrowers.

"Minnesotans take out student loans in good faith so they can get educations that will help them better afford their lives. My office is showing once again that when companies take advantage of that good faith to rip Minnesotans off, we will come after them," Ellison said in a statement. "I encourage any Minnesotan who's been preyed upon by this company or others like it to contact my office so we can hold these bad actors accountable."

Per the terms of the settlement, the company will pay the $20,000 fee to the state, which will then be distributed to all impacted borrowers as restitution payments.

This comes during a time of significant uncertainty for student-loan borrowers — President Joe Biden's plan to cancel up to $20,000 in student debt for federal borrowers is currently on hold due to two conservative-backed lawsuits that blocked the implementation of the relief. The cases are headed to the Supreme Court on February 28, and at this point, millions of borrowers relying on that relief don't know if they will see a reduction to their balances this year.

In light of the uncertainty, and the potential of broad relief, the Education Department launched a communications campaign to protect borrowers from scams. In October, before the application for debt relief was released, the department released a list of ways it will crack down on scammers, including publishing a "Do's and Don'ts" list to outline actions borrowers should and should not take as the application for relief becomes available.

The Federal Communications Commission also cracked down on a robocall campaign that was misleading borrowers after Biden's relief was announced, saying that "scam robocalls try to pull from the headlines to confuse consumers. The newest trick in their playbook? Trying to take advantage of people who want help paying off their student loans."

It's unclear if the department is planning additional actions to prevent fraudulent behavior in the student-loan industry, but with the student-loan payment pause expected to end later this year after over three years, it's likely there will be increased scrutiny over the types of communications borrowers are receiving as they prepare to enter repayment.