Watch out for official-looking debt scams

Who would have thought you could run into a minefield just trying to slash a few bucks off your student-loan payment each month?

Borrower, beware. Watch out for official-looking federal logos slapped onto websites and social-media sites promoting programs to reduce student-loan payments. A logo doesn't mean that what's offered is part of some generous federal bailout.

The U.S. Department of Education has sent cease-and-desist letters to two companies to stop the unauthorized use of its seal: Georgia-based Perfect Privacy, acting as SL Programs Student Loan and Debt Consolidation, and the Student Loan Project in California.

The Education Department is once again warning people they should not be fooled into paying for student-loan forgiveness. It's a free process.

But some debt-relief companies charge up-front consolidation fees of $999 or 1 percent of the loan balance, whichever is higher. Or you might be asked to pay an "enrollment" or "subscription" fee that's as high as $600.

The trouble is some direct mail looks legitimate, even spelling out how much you owe in student loans.

"As best we can tell, anybody who has some kind of student loan has been targeted," said Persis Yu, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center. "They're looking for people who are probably very desperate with their student loans."

What's particularly upsetting is that people want income-driven programs to help reduce their monthly student-loan payments precisely because they're in dire financial straits.

Yu said she worked with one young woman who spent $600 to $700 to consolidate her student loans, then was hit with a $50 monthly service fee. Her income was so low she didn't need to pay any money toward her student loans under an income-driven plan. But she was handing over money to cover all these charges.

"You don't need to pay to consolidate your loans," Yu said. "There's no cost to enroll in any of these programs."

Some outside outfits do not fully explain the various income-based options. Some post only in small print on their sites that their companies are not affiliated with the U.S. Department of Education or the federal government.

The National Association of Student Financial Aid Administrators has noted that student-loan borrowers should not be lured into paying for federal benefits. Misleading emails or social-media posts can include such wording as, "Obama Wants to Forgive Your Student Loans!"

Mark Kantrowitz, publisher and vice president of strategy for Cappex.com, said income-driven repayment plans should be used mainly as safety nets for those whose total student debt exceeds their annual income. They also can be used by borrowers who work full time in public-service jobs, because public-service loan forgiveness will cancel the remaining debt after 10 years of repayment in an income-driven repayment plan.

Borrowers need to consider whether they'd end up driving up the loan balance over the long run by using an income-driven repayment plan or using deferment and forbearance, which suspend the repayment obligation and can drive up the total debt.

The process can seem incredibly confusing, which helps create openings for shady operators.

"The challenge is that selecting an optimal repayment program for you is not always straightforward," said Matt Ribe, director of legislative affairs and corporate secretary for the National Foundation for Credit Counseling in Washington.

The nonprofit group is launching a national student-loan counseling program with certified counselors who can work with struggling borrowers. Each member group can charge a fee, but Ribe said typically fees would be less than $200 or so. (Information: 877-406-6322 or www.studentloanhelp.org.)

Often, the initial issue for college grads is figuring out how much they owe or whether their student loans are private or federal loans. A good website to start the research: www.studentloans.gov.

The federal government offers four income-driven plans as options to college grads or others juggling student debt who want to lower monthly payments. You have to go through your loan servicer to work out the repayment plan.

To apply, you must submit an application called the Income-Driven Repayment Plan Request.

The Federal Student Loan website has a calculator to help you determine repayment options under various programs. You also can go to www.studentaid.ed.gov to get more information on income-driven repayment plans.