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Government Takes Step To Battle Growing Student Debt Relief Scams

A sign of a growing problem for the government.

Posted on August 26, 2015, at 9:01 a.m. ET

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The Education Department and Secretary of Education Arne Duncan have launched an online campaign to warn students about debt relief scams that use the department's name to charge vulnerable borrowers hundreds and even thousands of dollars to enroll them in federal aid programs that are free to sign up for.

In the department's video, Duncan tells borrowers that ads about federal student loans are likely "too good to be true," calling their fees "exorbitant," and reminding borrowers that the government's aid programs should come at no cost.

The department's efforts are a sign that debt relief scams, which which frequently capitalize on the authority and publicity of the department and its aid programs to lure borrowers, are a growing problem for the government — a problem that, given the nature of the industry, has no easy solution.

Through websites, search engine ads, social media campaigns, and scores of robo-calls, student debt relief firms target federal loan borrowers who are struggling to make their payments. Many misleadingly claim to be connected with, or even employed by, the Education Department, then charge astronomical fees — sometimes even on a monthly basis — to enroll students in income-based repayment programs with the government. That enrollment process is designed by the government to be free and accessible to all borrowers.

Experts agree that student debt relief scams have multiplied rapidly in the past year, and are only likely to pick up steam as the federal government's borrower assistance programs gain more media attention. Income-based repayment and other federal programs are central parts of Hillary Clinton's "New College Compact."

But for the Education Department and regulators, tracking down and going after any of these firms is a daunting, and in some cases impossible, task. For now, at least, debt relief companies are typically fly-by-night operations, frequently changing names, owners, offices, and phone numbers. Madigan, the Illinois Attorney General, has filed a handful of lawsuits going after the companies, and one was shut down by the Consumer Financial Protection Bureau in May. But dozens more have sprung up in their place.

The department has faced criticism in the past that it does not do enough to protect students from such scams. In June, Illinois Attorney General Lisa Madigan called on the department to certify nonprofit counselors to help students enroll in the program. And Rohit Chopra, the former student loan ombudsman at the Consumer Financial Protection Bureau, has placed some blame on the loan servicers employed by the department, saying "sloppy servicing can spawn scams."

Brianajackson / Getty Images

A BuzzFeed News investigation, in partnership with the International Consortium of Investigative Journalists, based on thousands of documents the government didn't want you to see.