Why experts say this moment is ripe for student loan scams

Experts are warning of a fresh uptick in student loan scams right now, as fraudsters seek to prey on borrowers' fears of skyrocketing payments.

While student loan fraud isn't new, scam attempts have climbed this year, said Jason Williams, assistant inspector general for investigations at the Education Department's Office of Inspector General. Complaints to the OIG's hotline, where people can report fraud, among other legal violations relating to the department's funds or programs have spiked this year, he said.

"Fraud is fraud. We always have fraud," Williams said.

But student loan scams, which run the gamut from identity theft to fraudulent debt relief, tend to increase during times of confusion and uncertainty. As student loan repayment rules shifted during the pandemic and forgiveness appeared to move in and out of reach to millions of borrowers, scam attempts soared, Williams said.

And now, experts say we're in another ripe moment for scammers as the Trump administration rolls out a series of new student loan rules.

Watch the segment in the player above.

President Donald Trump's "One Big Beautiful Bill Act," passed by Congress last summer, made several key changes to student loans, further complicating what was already a complex repayment system.

Changes to taking out and repaying student loans took effect on July 1, including fewer income-driven repayment options for new borrowers and lower limits on some graduate loans.

For millions of existing borrowers on the Saving on a Valuable Education (SAVE) plan, July 1 also started a 90-day clock before they will need to switch to a different plan or be automatically transitioned to the new standard plan. Many of those borrowers will likely face higher payments on a different income-driven repayment plan.

READ MORE: Biden's SAVE plan for student loans is officially dead. Here's what experts suggest now

But for millions of other current borrowers on other plans — income-driven, standard or graduated standard — nothing will change until 2028, unless they take out new loans or consolidate their old ones.

"Any time we see a transition like this, that's when we always tell people to be on the lookout for these scams," said Anna Anderson, senior attorney at the National Consumer Law Center.

During former President Joe Biden's ill-fated effort to discharge many student loans, scammers preyed upon people's optimism around loan forgiveness, said Carolina Rodriguez, director of New York's Education Debt Consumer Assistance Program.

What's different now is that scammers are preying on people's fears around student loan changes, she said.

"The fear is going to go further, and the fear is more widespread," Rodriguez said.

A 'spectrum' of student loan scams

A view of the exterior of the Department of Education building in Washington, D.C., in March. Photo by Kent Nishimura/Reuters

One way companies can defraud borrowers is by charging to file income-driven repayment plan requests or help with applying for the Public Service Loan Forgiveness (PSLF) program, experts told PBS News.

Asking for payment is a red flag. People should not pay for help with changing their repayment plan, or lowering or postponing their payments, or consolidating their loans, Anderson said.

That's because the Education Department pays federal student loan servicers to help borrowers for free, she added.

Williams said if somebody is asking you for a fee for anything related to federal student loans, "it's a scheme."

A common scam is when borrowers pay a company to manage their loans, but the loan payments aren't made, he said. The company then collects for themselves what you should be sending directly to the Education Department, and then the loan goes into default, he added.

Celina Damian, a student loan servicing ombudsperson for California's Department of Financial Protection and Innovation, has seen borrowers sign up with an agency that they believed was affiliated with the Education Department for help with their loans. In one instance, an overseas company did file an application with the department on behalf of the borrower, who then qualified for a no-payment income-driven repayment plan. When the borrower made payments toward what they thought was their loan, the scammer kept the money.

Other times, companies will convince borrowers to refinance their federal loans into private ones, sometimes at a temporarily lower but variable interest rate.

In some cases, lenders have "outright lied" to borrowers, falsely claiming they have forgiveness programs or income-driven plans too, Anderson said.

Consolidating or refinancing can have serious long-term consequences, she added.

WATCH: How scammers are siphoning college financial aid with stolen student identities

Federal loans on income-driven repayment plans do eventually get forgiven and borrowers who have trouble repaying have more options for help in the federal system than with private loans, she said.

Companies that charge for changing plans or that mislead borrowers into refinancing can often straddle a gray area between outright scam and legal but deceptive practices, experts told PBS News.

"We tend to think of evil when we hear 'scam,' but there's a spectrum," Rodriguez said. "What are legit businesses versus questionable businesses? I can see you're not defrauding, but it's an unfair outcome."

Another scam that worries Anderson is when borrowers give personal loan and account information to a company, hoping they'll help with loan relief.

In turn, the company may do something illegal, such as signing the borrower up for more loans but taking the disbursement for themselves.

Complicating matters is the fact that guidance from the Education Department and servicers is confusing to borrowers, said Natalia Abrams, president and founder of the Student Debt Crisis Center.

"We always say that with more confusion comes more scams," she said.

Some borrowers think they need to change repayment plans now even if they're not on SAVE, she said. "Many borrowers don't know which bucket they fall into, and that's when scammers prey on them."

Scams and misinformation abound on social media

A school teacher in Utah fills out paperwork to payback her student loan while trying to navigate policies under the Trump administration. Photo by Jim Urquhart/Reuters

In the current landscape, borrowers are worried that their payments may double or triple, which "is true in some cases, but not necessarily true in all cases," Rodriguez said.

When people are concerned about whether they'll be able to afford another payment, they're more likely to hear what they want to hear, Rodriguez said.

READ MORE: As student loan defaults rise, experts worry about what's next

One borrower she's counseling said a company claimed they could lower the client's payments, she said.

"My response to that is: The rules are the rules. There's nothing I can do to change the formula in the plan," she said.

As the "tip of the spear" for the agency, the Education Department's OIG opens criminal investigations into student loan scams, though it doesn't keep track of how many people fall prey to them across the country, Williams said. The Federal Trade Commission and the Consumer Financial Protection Bureau also play a role in combating student loan fraud.

Federal prosecutors charged a woman in Florida last year who claimed to be a "student loan default guru" over a scheme that led borrowers to submit false information to the Education Department. The 38-year-old submitted applications under borrowers' accounts that misrepresented or falsified their work histories to make them eligible for PSLF.

In one instance, she claimed that a borrower had been working at an employer since 2006, though that applicant would have only been 11 years old. Ultimately, she charged victims a total of $348,000 for her services, according to the initial court complaint. She pleaded guilty to one count of conspiracy to commit wire fraud. Her sentencing is expected at the end of July, Williams said.

Because the loans didn't qualify for forgiveness, they were — or will be — reinstated, he added.

In that case, the woman contacted many of the borrowers through social media, Williams said, adding that scammers often work through social channels, email and unsolicited texts.

Misinformation on social media is also a problem, Rodriguez said. Content creators without expertise in the topics they cover sometimes parrot information they've seen online, and can unintentionally spread false or inaccurate information.

Scammers have proliferated on social media, especially in the last year, Rodriguez's clients have told her.

"Social media is obviously a big way that borrowers are getting information," from TikTok, Instagram, among other platforms. "An increasing number of our clients come to us and say, 'Someone was offering to help me switch from the SAVE repayment plan but they wanted $200 just for the consultation.'"

Precautions and protection

To avoid scams, experts generally advise a few best practices:

• Never give anyone access to your student aid accounts.
• Call the servicer yourself or check the Education Department's website to confirm you're working with an approved servicer.
• Know that your servicer is not reaching out to you on social media or via unsolicited emails or texts.
• Outside of SAVE changes, be wary if you get a call trying to get you to change plans.
• Don't pay for help. Instead, work with nonprofits that offer free advice and workshops, or your state's student loan ombudsperson, if there is one.
• Don't sign contracts, lock yourself into agreements or give someone else power of attorney.

And those who have been scammed do have options, even if they're limited.

Rodriguez said when companies have defrauded her clients, she's been able to recover the money after filing a complaint with the state's financial services department.

Even if borrowers can't recover their money, Anderson recommends they file a report with their loan servicer, their bank or credit card company, their state attorney general's office or the FTC.

Borrowers who've given someone else their personal loan information or access to their accounts should change their passwords, check their credit reports and potentially freeze their credit, she said.

At some point, legal advice may be necessary, Anderson said.

"There are a number of legal aid organizations that offer free advice in these scenarios," she said. The Education Debt Consumer Assistance Program is available for free to all New York residents.

With greater public awareness, could scams die down as people begin to understand the new rules?

Williams at the Education Department's OIG office doesn't think so. He's already concerned about scammers using artificial intelligence to make phone calls sound more legitimate.

"From what I've seen, doing this almost 25 years, it never drops off," he said. "The scam just works itself into something else."