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Scams Offering Student Loan Debt Relief on the Rise

July 16, 2014

The number of college graduates being preyed upon by companies offering student loan debt relief is rapidly increasing, according to The New York Times and the National Consumer Law Center.

Debt settlement companies have long been a problem in the nation and the State of Washington. During and in the wake of the 2008 recession, debt settlement companies predominantly targeted consumers and homeowners faced with insurmountable credit card or mortgage debt.

The above programs typically involved the consumer or homeowner making their home or credit card payments to a third-party debt settlement company (instead of their banks or credit card companies) who, in turn, promised to settle the debt for pennies on the dollar or to refinance their loan for more favorable terms.

All too often, the consumers or homeowners wound up paying hundreds or thousands of dollars in illegal fees to out-of-state companies who performed short of their promises, if anything at all. Faced with garnishments and lawsuits, swaths of consumers ended up filing bankruptcy—exactly what they hoped to avoid by entering a debt settlement program. Others faced foreclosure lawsuits after their loan modifications didn’t work out.

Consequently, many private lawsuits and governmental enforcement actions have put many of these high profile companies out of business and attempted to get as much money back as possible for consumers and homeowners who were duped by false promises. Now, a new wave of debt settlement is appearing.

The Consumer Financial Protection Bureau reports that student loan debt is at an all time high and thus a new student loan debt relief industry has arisen offering to assist consumers in obtaining lower interest rates, refinancing, forbearance, or discharge of their loans. Unfortunately, many of the advertisements for these programs are deceptive and their results (if any) are often available for free through federal programs. As recently noted in the Chicago Tribune, Illinois Attorney General Lisa Madigan has filed lawsuits against Broadsword Student Advantage LLC and First American Tax Defense LLC, alleging these companies have violated that state’s consumer-fraud and debt-settlement acts.

Understanding the potential pitfalls of debt settlement, Washington State restricts the fees that debt settlement companies may charge, including caps on advanced fees and total charges. For example, a company offering to manage, counsel, settle, adjust, prorate, or liquidate the indebtedness of a debtor cannot collect a fee of more than 15% of the total debt, more than 15% of any one payment, or an initial fee of more than $25.00.

As reported by The New York Times, companies offering student loan debt relief often charge advanced fees in the hundreds of dollars as well as monthly maintenance fees that may violate Washington’s strong consumer protection laws.

An individual who has been charged excessive fees for debt settlement services may be entitled to up to three times the amount of fees paid (minus any distributed to creditors), injunctive relief prohibiting the company from engaging in similar conduct in Washington, and payment of attorney’s fees and costs.

Terrell Marshall Law Group PLLC has represented thousands of consumers class actions against debt settlement companies that charged illegal and excessive fees for debt settlement services, recovering millions for victims of these scams.

If you have fallen victim to a student loan relief scheme and would like to speak with a lawyer, feel free to call us at 206-816-6603 or contact us using the form below. Consultations are free and confidential.

You can read more about the student loan debt relief industry here:

New York Times

National Consumer Law Council

Consumer Financial Protection Bureau

Illinois Attorney General’s Office


Time Magazine

Fox Business