Some Student-Loan Borrowers Are Being Charged for Free Federal Services

June 19, 2013

Americans struggling with student-loan debt who turn to private "debt relief" companies may wind up paying fees to enroll in a free government program, according to a new report.

The National Consumer Law Center made "secret shopper" calls to 10 companies in the growing sector, which offers help in consolidating student debt. The center analyzed company Web sites and looked at contracts and online complaints to compile its report, "Searching for Relief," which was released on Wednesday.

Investigators found that the companies they contacted charged initial fees as high as $1,600 to enroll customers in federal programs for services, such as income-based loan repayment, that are free and available to any qualified applicant. After helping enroll borrowers in the government programs, some companies charged monthly fees of up to $50 even though it was "unclear what services, if any," they continued to provide, the report says.

The report also contends that many of the companies provided little transparency to potential customers. For example, they did not disclose or specify fees upfront, or they misrepresented their services or their lack of any formal connection to the federal government and its debt-relief programs.

While charging fees to help people enroll in free services "is not inherently abusive," the report says, some of the practices identified by the investigators may violate state and federal consumer-protection laws.

In addition to calling for better enforcement of existing laws and new regulations for the student-loan debt-relief industry, the authors of the report put some of the blame for potential abuses on the federal government.

"The reality is," the report says, "that the government does not have an efficient system for informing borrowers of these programs or of administering them efficiently and according to the law. One of the best ways to keep these companies in check is for the government to improve its administration of its own programs."