You are sitting around watching late night cable TV or visiting your favorite Facebook page. You see an ad telling you “You can have payments for as low as $25.00.” “Qualify for student loan forgiveness.” “Are you a teacher? Qualify for forgiveness.”
If you called the number or clicked on the ad, you are not alone. In fact my sister-in-law has had a company calling her about a teacher forgiveness program daily since she called them two months ago. Lucky for her, after some research and a quick trip to the BBB database, I talked her out of it.
These companies are also promoted by your neighbors. In my above example her aunt suggested she do this since she’s a teacher. So instead of asking someone who deals with student loans every day, she listens to someone who has no experience with loans. And then the fun starts. Let us look at why student loan relief agencies are not people I believe can be trusted (usually of course!).
The main reason I advise to not go with a “do it for me” company is because everything they do you can do for free. Also if you hire someone to do something for you, you are not going to learn what happened and develop a dependency. The argument is if you need to learn what you are doing so you can help yourself and know WHY you are doing what you are doing instead of blindly handing your information over to someone.
An example of this brought on by a caller into Dave Ramsey’s financial radio show the other day. The caller stated she hired a debt relief agency who despite the fact they were paying off her debt, it destroyed her credit because every month she was being reported late. It got me to thinking about the difference between debt relief companies that take over your student loans and a loan consultant.
1) They are deceptive and rarely forthcoming
The biggest problem I have with these programs are their dishonesty and deception they use to get business. To me if they were providing a great reputable service they would not have to hide behind these tactics.
What do these companies do that are so deceptive? I have come up with a quick list. Let’s call its reasons 3-5 why I am very wary of many of these companies.
2) They make you believe that they have access to special programs and have special relationships with the Department of Education that allows them to get things for you you couldn’t get yourself.
What they do is get a Power of Attorney so they can make changes on your behalf. Then they go onto www.studentloans.gov and complete your application for you. Doing an Income Plan or Consolidation is what I explain to people daily and is something anyone can do. There is no such thing as “special programs” that regular borrowers are not entitled to.
3) They tell you it’s too hard. So even if they don’t tell you that you can’t do it if you wanted to, they tell you it’s too hard. The application is too long with too many technical questions.
This couldn’t be further from the truth. In fact, for the consolidation application it is about 60% (if not higher) of the application is just simple information such as name, address, driver’s license , etc. In addition they require you to add references and if you want to base your payments on your income you will just have to access the IRS database to upload your tax information.
The main “technical” part is choosing your repayment schedule. As part of the consolidation application you are given the estimates on what each payment will be that will help you choose what you want. If you need more information, simply contact your servicer with questions.
When it comes to applying based on your income, it is basically the same as above part of the consolidation. But either way it is far from difficult.
4) They promise you a year without payments as a result of your actions. This basically falls into the category of “things they can do that you can’t.” They will make you believe as a part of their program that you won’t have to make your payments for a year.
Let me explain real quick why this is. Whenever you consolidate you get your 3 years back of General Forbearance. Since they have Power of Attorney they request that they use one year of this forbearance, thus stopping your payments for that year.
This is also something you can do yourself by calling your servicer. It may also not be in your best interest as once this 3 years is up, it’s gone forever and interest accrues that entire time, which can cause your payments to go up later.
5)They are incompetent
This may be a bigger problem than the deception. Now I must be honest, I only hear the horror stories and I’m sure there are good companies that do it the right way, but let me tell you there are so many bad companies out there.
I saw one that sent in a paper application blank, someone else who charged to consolidate a loan that was not eligible (you can’t consolidate an already consolidated loan unless it’s included with another loan), and many many more who never send in the documents at all.
6)They leave you in the dark
The key reason I am against them is it doesn’t teach a borrower anything. So much of their success seems to rely on keeping the borrower vulnerable and in the dark. Even if someone else does the work for them, the borrower needs to know what is happening (such as why they don’t have to make payments for a year and the consequences) so they can instruct the agency the best route for them.
A time when they may be okay
Let us say you are a doctor. In fact let us hope you are a doctor as this means in the future you will be making some bank. But you probably have a ton of student loans and you are working 35 hours shifts. And you can’t wait to stop making 60,000 dollars a year to pay your $25,000 dollar a year student loan payments with that makes your life feel like total crap. Well you may have no time to deal with your loans. So a company like this may be helpful.
And like I said there are probably some good ones. In fact I really hope there are. Even for the above example you still have to find a person who has your best interest at heart, gives you options, and always keeps you in the loop.
Think of it this way. You are at a party and talking to your friends about your loans (sounds like one hell of a party!). Can you explain to them in basic terms what the person is doing for you? If not, then this person is not for you. You cannot be that much in the dark even if the situation makes sense for you to hire someone.