SEARChINg fOR RELIEf - Student Loan Borrowers Assistance

Searching for Relief

Desperate Borrowers and the Growing Student Loan "Debt Relief" Industry

June 2013

N C L C?

NATIONAL CONSUMER

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? C E N T E R

? Copyright 2013, National Consumer Law Center, Inc. All rights reserved.

About the AuthorS Deanne Loonin is a staff attorney at the National Consumer Law Center (NCLC) and the director of NCLC's Student Loan Borrower Assistance Project. She was formerly a legal services attorney in Los Angeles. She is the author of numerous publications and reports, including Student Loan Law and Surviving Debt. Contributing Author Jillian McLaughlin is a research assistant at NCLC. She graduated from Kalamazoo College with a degree in political science.

Acknowledgments This report is a release of the National Consumer Law Center's Student Loan Borrower Assistance Project. The authors thank NCLC colleagues Carolyn Carter and Jan Kruse for valuable comments and assistance. The findings and conclusions in this report are those of the authors alone.

NCLC's Student Loan Borrower Assistance Project provides information about student loan rights and responsibilities for borrowers and advocates. We also seek to increase public understanding of student lending issues and to identify policy solutions to promote access to education, lessen student debt burdens, and make loan repayment more manageable.

N C L C?

NATIONAL CONSUMER

LAW

? C E N T E R

About the National COnsumer Law Center

Since 1969, the nonprofit National Consumer Law Center? (NCLC?) has used its expertise in consumer law and energy policy to work for consumer justice and economic security for low-income and other disadvantaged people, including older adults, in the United States. NCLC's expertise includes policy analysis and advocacy; consumer law and energy publications; litigation; expert witness services, and training and advice for advocates. NCLC works with nonprofit and legal services organizations, private attorneys, policymakers, and federal and state government and courts across the nation to stop exploitive practices, help financially stressed families build and retain wealth, and advance economic fairness.

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searching for relief

Desperate Borrowers and the Growing Student Loan "Debt Relief" Industry

Table of Contents

Executive Summary

3

Introduction

7

NCLC Investigation of Student Loan Debt Relief Companies

7

Key Findings

8

Companies Mischaracterize Government Programs as Their Own

8

High Fees for Programs that are Available for Free

10

Lack of Transparency

10

Changing Only Reasonable Fees

11

Evaluating the Services

13

Improperly Selling a One-Size-Fits-All Approach

13

Inaccuracies and More Inaccuracies

14

Improperly Claiming Government Affiliations

17

Discouraging Borrowers from Handling Their Own Cases

18

This Is Really about Sales

19

Limiting Remedies and Access to Justice

19

Potential Legal Violations

20

Federal Laws

20

Credit Repair Organizations Act

20

FTC Telemarketing Sales Rule

21

Nonprofit Status

22

Current Federal Enforcement

22

State Debt Settlement/Management Laws

23

Other Potential Legal Violations

25

Unauthorized Practice of Law

25

Use of Powers of Attorney Documents

26

Failure to Safeguard Consumer Privacy

26

False and Deceptive Advertising

27

?2013 National Consumer Law Center

Searching for Relief 1

Alternative Assistance Resources

27

Ombuds Programs

28

Credit Counselors

29

Default Management Companies

29

Conclusion

30

Recommendations

30

Endnotes

33

2 Searching for Relief

?2013 National Consumer Law Center

Executive Summary

The United States government has responded to growing levels of student loan debt by creating an array of borrower assistance programs. Getting this relief, however, is rarely easy. Government programs are unnecessarily complex and borrowers too often confront an impenetrable bureaucracy that prevents them from accessing their rights. To compound these problems, there are few reliable resources borrowers can turn to if they need help.

A new "student loan debt relief" industry has sprung up in response to the demand for borrower assistance and the dearth of reliable resources. Most of these companies are for-profit, although there are issues with a growing number of nonprofit organizations as well. This National Consumer Law Center (NCLC) report investigates this growing industry.

Our investigation consisted of ten secret shopper calls, an analysis of the web sites of the ten companies to which we made secret shopper calls plus ten others, review of actual contracts and online complaints, and discussions with other advocates and state and federal regulators.

Our findings highlight numerous problems with this new industry, including:

? Student loan debt relief companies mischaracterizing government programs as their own.

? Charging High Fees for Programs that are Available for Free This practice is not inherently abusive, but it raises a number of warning signs. At a minimum, it is deceptive that most of the companies fail to prominently disclose that "their" programs are actually federal government programs that an individual can access on her own at no cost. None of the companies in our secret shopper calls or web reviews disclosed the fees online. Moreover, most companies would not initially specify the exact cost of their services by phone. Lack of transparency is not the only problem. Another key concern is the amount of fees charged and whether these are reasonable. Our investigation found a range of fees charged, including initial fees up to $1600 in some cases and monthly fees for ongoing services of $20-50. The monthly fees are particularly suspect since it is unclear what services, if any, the consumer is buying on a monthly basis.

? Selling a One-Size-Fits-All Approach Despite claims of broad services, most of the representatives we spoke with acknowledged that they offered only loan consolidation. There are numerous problems with this approach including that consolidation is not an appropriate product for all borrowers and may not even be available to all

?2013 National Consumer Law Center

Searching for Relief 3

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