Feds explain how $23-million student loan relief scam kept victims in the dark

Students caught in a debt relief scam for months or even years never realized it — in part because the services they thought were lowering their monthly loan payments were using their passwords to change their contact information, which kept the students’ legitimate loan servicers from contacting them, according to federal regulators.

Thousands of students fell victim to the debt relief scheme, which operators of Federal Direct Group and Mission Hills Federal had been running since at least 2014, the Federal Trade Commission said in a news release on Thursday. Students were cheated out of more than $23 million, according to the agency.

The agency said the scammers lured debt-strapped students with “false claims that it would service and pay down their student loans.” The scammers tricked indebted students into sending loan payments directly to them — but instead of paying down the loans, the scammers either pocketed the money or made only minimal payments on the loan, according to the FTC.

The commission said it has put a stop to the scam, explaining in the news release that in response to an FTC “complaint seeking to end the deceptive practices, a federal court temporarily halted the scheme and froze its assets.”

Students were also hoodwinked into paying the scammers “hundreds to thousands of dollars in illegal upfront fees,” the FTC said.

“Debt relief companies can’t collect advance fees or masquerade as federal student loan servicers,” Andrew Smith, director of the FTC’s Bureau of Consumer Protection, said in a statement. “Anyone asking for upfront fees to help with student loan debt is likely a scammer, and consumers should hang up and alert the FTC.”

To change the students’ contact information and keep them in the dark about the scam, the scam operators got ahold of personal details like the usernames and passwords for U.S. Department of Education websites, where the scammers could log in and alter profiles, “effectively hindering or entirely preventing consumers’ loan servicers from communicating with consumers,” the FTC said.

Mission Hills Federal, one of the accused scam operators singled out in the FTC news release, did not immediately respond to McClatchy’s request for comment by email, and a phone number on its website was not operational.

The address listed on the company’s website is in Rancho Santa Margarita, California, which is southeast of Los Angeles in Orange County.

Contact information for the other operator the FTC singled out, Federal Direct Group, could not be found. Broadcast media company TEGNA also reported that it was unable to reach both accused operations.

A complaint the FTC filed in U.S. District Court in California this month said the scammers “lured consumers with telephone calls and emails.”

The FTC complaint said telemarketers calling would-be victims “have typically quoted consumers a monthly payment that is half or less than what consumers were then paying their loan servicers at the time. For example, one consumer who had been paying $200 per month was told her new monthly payment would be $50; another consumer who had been paying $130 per month was told the new payment would be $61.”

Collective student loan debt in the U.S. is $1.5 trillion, according to the FTC, with more than 42 million Americans carrying loans.

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Jared Gilmour is a McClatchy national reporter based in San Francisco. He covers everything from health and science to politics and crime. He studied journalism at Northwestern University and grew up in North Dakota.