California attorney general warns of student loan scams

State Attorney General Kamala Harris issued a consumer alert this week warning of private companies charging for federal student loan services that are available for free.

Harris said her office recently has been receiving more complaints about the companies.

“These companies may claim that they have a special relationship with the Department of Education or that a special governmental loan consolidation will be ending soon and will urge students to use their services in obtaining student loan consolidation or relief,” Harris’s office said in a statement.

The attorney general's public inquiry unit and the Consumer Financial Protection Bureau are both fielding complaints and referring students or former student to federal loan consolidation resources to help manage their debt. 

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“What makes this a scam, we feel, is the scare tactics,” said Natalia Abrams, co-founder of Studentdebtcrisis.org, a nonprofit that helps students free of charge to manage their loan debt.

The people who seek assistance from the nonprofit told Abrams they’re convinced by the private companies that the loan relief process is complicated. They say they aren’t told the U.S. government doesn’t charge to apply for alternative payment plans or loan forgiveness.

Some people have paid private companies $1,000 or more for services that are free, she said.

According to Generation Progress, an advocacy group that works on social and political challenges facing young adults,California has about 4 million people with outstanding student loans with their total debt amounting to about $103 billion. Most of the loans are from the federal government and used to pay for college, university or trade schools.

While the average student loan debt amount in California — about $20,000 — is much lower than in most other states, the number of people with loan debt has been rising in recent years.

The abrupt closure recently of Corinthian Colleges, the for-profit college chain based in Santa Ana, shed light on the issue of student debt. Many of the students enrolled in Corinthian trade schools had taken out federal and private loans. Thousands of students in California were caught up in the closure of the campuses, leaving many without a way to finish their degrees or certificates.

The U.S. Department of Education, meanwhile, stated Thursday it is developing rules aimed at streamlining the federal loan forgiveness process for students who feel they were defrauded by their institutions.

Federal law and regulations allow student borrowers to ask that their debt be waived if they believe their colleges caused their problems. “These provisions have rarely been used in the past, but the wind down of Corinthian Colleges has demonstrated the need to make improvements to help students seeking debt relief,” the department said in a statement.

The department also said enrollment in an program to help borrowers manage their federal loan debt by cutting monthly payments based on income increased by 56 percent from June 2014 to June of this year. The "Income-Driven Repayment" plans enrolled nearly 3.9 million borrowers as of June 30, according to the department.