Are All Student Loan Assistance Companies a Scam?

“Dear Steve,

I am a bankruptcy attorney and looking to provide services to those with student loan problems, as well.

You appear to believe most or all companies that help you with student loan issues are scams.

Do you think there is any student loan service that can be provided to the public that is not a scam?

I genuinely ask this question, because I am not in the business of scamming people so if there is no good benefit to provide the service, I would not want to provide it.


Dear Justin,

This is something we were just talking about in our Bankruptcy Education Project which you might want to consider joining.

I think these two previous posts will be right on target for you.

How to Run a Clean Student Loan Assistance Program

The Ultimate Guide to Dealing With Student Loans You Can’t Afford

Interestingly enough I personally think bankruptcy attorneys are in the best position to provide student loan relief.

Business MeetingIn my opinion the most logical approach is if the person is loaded up on other debt, then get them in a chapter 7 bankruptcy and put them in a position where they can make the regular full 10 year payment, avoid the reduced payment programs, and get these loans out of the way faster.

The bankruptcy forgiven debt is not taxed but as it stands right now, forgiven student loan debt in payment reduction program is taxed when forgiven, if the person is not insolvent.

For someone who is simply struggling making the reduced federal loan payment and has private student loans that are not willing to be flexible, then a chapter 13 for all the student loans is probably a better choice then letting them sink further.

Some bankruptcy attorneys are even doing rolling chapter 13s until the government can take action to provide people with some other relief.

See also  Student Loan Assistance Rescue Scams On the Rise - Buyer Beware

In some districts, the collection fees and penalties on the private student loans are eliminated as well.

For more on this read my article over on Huffington Post.

Otherwise, you would simply be offering the person some administrative help to do what they can do already for free directly with the Department of Education.

Outside of that approach I’ve yet to see anything magical or stupendous and I admit I get frustrated when a whole lot of bankruptcy attorneys overlook the advantage of their solution even though the student loans might not be dischargeable.

Please post your responses and follow-up messages to me on this in the comments section below.


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1 thought on “Are All Student Loan Assistance Companies a Scam?”

  1. From the NCLC Report on Student Loan Debt Relief – I think this shows that there is a private market need, it’s just being met by boiler room idiots. It all comes down to disclosure and utilizing a true counseling approach in my opinion.


    We certainly know that the federal student loan programs are unnecessarily complex and that many borrowers face unimaginable and inexcusable bureaucratic hurdles in trying to get relief. The federal government has made some improvements, including online applications, and there are resources such as ombudsman programs, discussed later in this report, that can help borrowers navigate the system. Yet there is no question that serious problems persist.

    Our experience is that the consolidation application is not particularly complex, but the process of getting the application approved and properly handled is extremely difficult. Our clients frequently find that the consolidation servicer does not consolidate the loans listed on the application, repeatedly asks borrowers to submit information they have already supplied, and places borrowers in the wrong payment plans. There are inexcusable delays particularly with borrowers seeking to complete annual recertification of
    eligibility for IBR. Servicers routinely lose paperwork or fail to process certifications on time. Borrowers who catch the problem on time still end up in most cases placed in forbearances which can lead to capitalization of interest or delays in public service forgiveness time periods.

    The debt relief companies seize on this incompetence in selling their services. It may be an appealing selling point, but it is deceptive if the companies go too far in implying or in some cases stating explicitly that a borrower cannot get relief on her own.



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