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Since I started writing about student loan rescue or assistance programs that look like they take unfair advantage of consumers I’ve heard from some that would like to know what a “legitimate” student loan assistance program actually would look like.

You can see the current list of articles on this subject of student loan assistance or rescue issues, here.

My prediction is that unless debt relief providers adopt a common code of conduct for student loan assistance programs the scammers out there will force regulators and consumer protection agencies to take action to shut them down.

History is an awesome teacher and lessons should be learned from the abuse rained down on consumers by bad debt settlement companies that led to the heavy restrictions facing all today in the debt settlement niche.

Unless the industry gets their own house in order on this, someone else (read that regulator or litigator) is going to do it for them.

Student loans are a perfect example of what I call the law mowing rule.

All people are aware they can mow their own lawn if they want to. Some don’t want to and hire a company to mow it for them, for a fee. I have no problem with that.

But imagine if people were told they could not mow their own lawn without hiring a lawn mowing company, rather than giving people a factual choice, that’s just deceptive and unconscionable.

Don’t scare consumers or obscure the facts they can deal with consolidating their federal student loans if they want to tackle the task.

Here is what I think a good student loan assistance program should look like:

Student Loan Assistance Program Basic Premise

We have to start with the realization that consumers with problem student loan debt will be perceived as a disadvantaged class of consumers. Organizations that take unfair advantage of these consumers will eventually be dealt with in a very aggressive way. Organizations that lie or deceive consumers will not be viewed favorably by regulators or attorneys that will sue those debt relief companies. And they will.

Do Not Ask for PIN

Companies should definitely not ask consumers for their FAFSA or Federal Student Aid PIN (Personal Identification Number). As one provider has said, “I am going to instead tell the client how to access their NSLDS report (the summary of student loans that they FAFSA pin is asked for) and walk them through it without asking for the PIN or doing the process ourselves.”

The Department of Education is very clear that consumers should not divulge their PIN to anyone.

Your PIN can be used each year to electronically apply for federal student aid and to access your Federal Student Aid records online. If you receive a PIN, you agree not to share it with anyone. Your PIN serves as your electronic signature and provides access to your personal records, so you should never give your PIN to anyone, including commercial services that offer to help you complete your FAFSA. Be sure to keep your PIN in a safe place. – Source

Fair and Reasonable Fees for Service

I’ve heard some companies want to charge $75-$450 for helping someone who wants to hire professional assistance to work their way through a student loan counseling and payment plan enrollment assistance service to consolidate student loans and get them on the appropriate repayment plan.

Personally I don’t have any issue with that fee or a similar advance fee as long as the points of this guide are followed.

What I do have a strong objection to is any ongoing monthly or contractual recurring fee for no service or minimal service.

Each year consumers will need to complete some paperwork and reapply for government student loan program repayment programs. A servicing company should be able to charge a fee based on the time required for that service but certainly that should be much less than the initial fee.

Performance Measurement

Student loan assistance companies should start tracking performance numbers from the start of their program and be transparent about their success rates.

Companies should not provide a promise or statement that the outcome of the service provided is better than the results actually obtained.

Suggested key performance metrics to track and make available for government student loan programs would include:

Number of consumers enrolled in student loan assistance program.
Number of enrollees that reduced all payments.
Number of enrollees that reduced some payments.
Number of enrollees that reduced no payments.
Number of client federal student loans.
Amount of each client federal student loan.
Monthly payment of each client federal student loan.
Interest rate of each client federal student loan.
Total amount of client government student loans.
Total client monthly payment of all enrolled student loans.
Initial status of each client loan.
New client consolidated loan amount.
New client consolidated loan interest rate.
New client monthly payment for each federal loan.
New client interest rate for each federal loan.
Total new monthly payment for all client enrolled loans and monthly payment for loans not able to be included for any reason.
Special repayment program each client loan was rolled into or enrolled in.

This will not only give companies a set of data they can use to compare the before and after payments but the success rates of their program as well.

This is not an exhaustive list but should be considered a minimum dataset to capture for all consumers money is collected for.

The FTC has already provided examples of what they feel is fair and accurate reporting for the debt settlement world. They will most certainly expect something similar of student loan assistance providers.

Here is what the FTC felt was fair for debt settlement sales:

May I base my advertising claims on the experiences of some previous customers?

Yes, but your sample must be representative of the entire relevant population of your past customers. To accomplish this you must, among other things, use appropriate sampling techniques, proper statistical analysis, and safeguards for reducing bias and random error. You can’t cherry-pick the most successful examples to inflate your results.

If you advertise or represent that your customers will save a certain amount of money or reduce their debt by a certain percentage – for example, “We can settle your debts for 40% to 60%” – your statements must be truthful, and you must have objective proof to back them up. Your claims must accurately reflect the results you’ve achieved for previous customers. It’s important to consider the message your claims convey. Under the law, the FTC looks at claims from the point of view of reasonable consumers. Therefore, what matters isn’t the literal accuracy of the words you use, but rather your proof to support the “net impression” your message conveys. For example, claiming that your past customers have achieved “up to 60% savings” is likely to convey to new customers that they, too, will get savings of around 60%. If you don’t have solid proof to back that up, the claim is deceptive.

Here are several important requirements for making sure your savings claims are truthful and not deceptive:

State the savings based on the customer’s debt when he or she signs up for the program. You may not inflate savings figures or percentages by including interest and fees the credit card company adds after a customer signs up for your program.

Example 8: Andy signs up with a debt relief service offered by Company H, owing $10,000 on his credit card. One year later, following negotiations with the credit card company, Company H negotiates a settlement allowing Andy to pay $6,000 to resolve the debt. However, since Andy enrolled, the credit card company has charged him interest and late fees totaling $2,000, so that Andy now owes $12,000. By getting a settlement for $6,000, Company H has saved Andy $4,000 ($10,000 minus $6,000) or 40% of the debt at the time of enrollment. It would be deceptive for Company H to claim to have saved Andy $6,000 ($12,000 minus $6,000) or 50% of his debt.

Include the impact of your fees on the claimed savings. You may not inflate your savings claims by excluding the fees your customers paid you.

Example 9: Betty owes $10,000 on her credit card, and signs up with Company J’s debt relief service. Company J gets a settlement allowing Betty to pay $5,000 to resolve the debt. However, at the time of settlement, Company J charges Betty a $1,000 fee for its work. It would be deceptive for Company J to claim to have saved Betty $5,000 – or 50% of her debt – because Betty also had to pay $1,000 in fees. Instead, Company J may truthfully state Betty’s savings as $4,000 ($5,000 minus $1,000) or 40% of Betty’s debt.

In calculating the results you’ve achieved over time, you must include customers who dropped out or otherwise failed to complete the program. Don’t base your savings claims only on customers who successfully completed your program.

Example 10: Company K had 10 customers signed up for its service. Each one had $10,000 in unpaid credit card debt for a total of $100,000. Five of the customers completed the program, and each saved $5,000 – for a total savings of $25,000. The remaining five customers dropped out of the program, each one still owing the $10,000 they owed when they signed up with the program. Taken together, Company K has saved its customers $25,000 – or 25% – of the total $100,000 debt they had when they signed up with the program. It would be deceptive for Company K to exclude the drop-outs and claim that it saved its customers 50% of their debt.

Include all debts enrolled by your customers, not only those that have been settled successfully. In calculating your savings claim, you may not exclude accounts you failed to settle, even if the failure was due to customers dropping out of your service.

Example 11: Company L has 10 customers, and each of them enrolls two $1,000 debts in the program – totaling 20 debts or $20,000. Company L is able to settle 10 of the 20 debts, each for $500. However, it was unable to settle the remaining 10 debts before those customers either completed or dropped out of the program. Thus, Company L has saved its 10 customers $5,000 or 25% of their debts in the program. It would be deceptive for Company L to exclude the 10 accounts that weren’t settled and claim a savings rate of 50%. – Source

Check Your State Licensing Requirements

It sure looks as if student loan assistance programs for a fee would fall under state debt management laws. Make sure you have cleared your service with every state you are considering offering services in. This may require licensing, registration, bonding, and no advance fee to comply with the laws on the books. Get specific legal advice from an attorney specializing in debt relief services before offering your service to the public.

Guarantees or Refunds

Any company charging a fee for student loan assistance services should offer a prompt 100% money back guarantee if the consolidated and reduced loan program is not able to be entered into if it is rejected by the Department of Education. Companies should not be incentivized to enroll anyone but those they feel will be successful in working out favorable repayment solutions with the Department of Education.

Consumers are paying for results, not enrollment.

Sales Commissions

Sales or affiliate commissions for enrolling people should not be paid on consumers who are unable to enroll in student loan repayment programs that provide a substantial benefit and are approved with the Department of Education. Salespeople should not be incentivized to enroll any breathing body but to be rewarded for assisting the most qualified consumers for the program.

DIY Disclosures

In my eyes and opinion, a good student loan assistance program should be as equally clear and upfront that a consumer can contact the Department of Education themselves to take advantage of government student loan programs. This should be made clear on their website on the same page the service is promoted on in an equally apparent way. This means no bottom of page disclosure that is hard to read and hard to find.

Any student loan assistance company should make links to the Department of Education available in a clear and conspicuous manner as well.

The primary link at this time is http://studentaid.ed.gov/repay-loans.

These DIY disclosures should NOT be buried in the fine print of the client agreement.

What Not to Say

Companies should not say they have a special arrangement or relationship with the Department of Education or imply they have access to programs or solutions that consumers do not.

Contract or Agreement for Service

The company contract or agreement for student loan assistance service should be clearly available for review by consumers on the company website before they have to give up any personal details. Consumers should have an anonymous ability to read and review the agreement before paying so they can evaluate the agreement and consider the terms requested in making their choice about who to work with.

Opportunities for Student Loan Assistance Sales

Companies can sell assistance services to consumers without lying or being deceptive. The goal is to find those people that want someone to do it for them in a fair and reasonable way.

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These consumers will not feel cheated since they are aware they can do it themselves and are making an informed and educated decision to hire expert assistance to handle the process for them.

And with a fast and fair refund policy, informed consumers are less likely to feel cheated or ripped off. These clients are less likely to file complaints or sue.

It Will Go Kaboom!

Unless the debt relief industry adopts a policy for student loan assistance like the one above, it will only be a matter or time before the scammers and liars hurt consumers and regulations and enforcement actions begin.

Once they do begin to hit the press, consumers will hear about the horrors of bad programs and good program providers will be tarred with the same brush.

I have already been in communication with regulators over this and know it is already on their radar.

Bonus Information

Here are the guides that readers are reviewing when looking for debt help. It would be a smart idea for you to review them and strongly consider making the changes necessary to bring your company into line with the commonsense transparency they promote.

Sincerely,

You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

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Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.