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Guest Robert Farrington

​​​​​​​Loan Consolidation Scam

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Guest Robert Farrington

Loan Consolidation Scam
After you graduate, it might be a good idea to consolidate your student loans. This is another area that is ripe with scams. The most common student loan consolidation scam is one in which the company charges a consolidation fee, but actually does nothing. The fee is sometimes called processing fees, administrative fees, or consolidation fees.

If you have a federal student loan, there are no fees whatsoever for student loan debt consolidation. You can do it yourself for free at StudentLoans.gov.

If you have a private student loan, there are a number of lenders who will refinance your private loans, federal loans, or both. Refinancing differs from consolidation in that rather than simply combining all your loans into one, you are actually taking out a separate loan with a new lender who pays off your existing loans. Credible is a comparison tool that allows you to fill out one form and see personalized offers from multiple lenders in the space. Going through any lender on the Credible platform is NOT a scam.

Plus, College Investor readers can get up to a $1,000 bonus when they refinance through Credible!

Finally, if you are considering consolidation, make sure you read our guide on The Right Way To Consolidate Your Student Loans.

Law Firm Lawsuit Student Loan Scam
This is a scam where a law firm will claim to be able to settle your student loan debt. There are a lot of variations on this scam, but typically a borrower is referred to a law firm by a "student aid company". The student aid company promises that this law firm can settle your student loan debt for thousands less than you owe.

Many times the law firm will ask you to make your full student loan payment to the the law firm itself (or whatever amount you can afford to pay). The law firm says they'll then negotiate a settlement with your lender.

However, what typically happens is that this law firm doesn't make any payments while negotiating with your lender - as such, you go into default on your student loans. At that point, the law firm will then claim you can't pay your bills, and try to negotiate a settlement based on that.

What happens to you, as the borrower, is that your credit score is trashed, and you made thousands of dollars in payments to the law firm. In the end, there is no guarantee that you will be able to settle your loans. And even if you do, the process may take years, and you'll still have to deal with the settlement in the end.

If you're considering speaking to a lawyer about your student loan debt, learn about what a lawyer can do for your student loans.

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