Student loan debt hovers at more than $1 trillion, a threefold surge from a decade ago and a record number of college students who graduated as the financial system nearly imploded have an average debt load of more than $20,000.
More than half of recent graduates are unemployed. And if they do have a job, it is probably a low-paying one that does not require that expensive college degree. Some Americans, including baby boomers whose savings were devastated by the financial crisis, are still struggling to pay off their student loans well into their 50s.
For the debt settlement industry, all this means a tantalizing gold mine of new customers.
“Your entire student loan can be forgiven,” Broadsword Student Advantage of Carrollton, Texas, boasts in radio ads.
Debt-settlement companies, which offer to help borrowers lower their monthly loan payments for a hefty upfront fee, have long been fraught with problems. But federal and state regulators are spotting new instances of abuse as the companies shift away from their traditional targets – credit card and mortgage debt – to zero in on student loans.
On Monday, Illinois became the first state to bring legal action against debt-settlement companies in connection with their student loan practices, contending in two lawsuits that Broadsword Student Advantage and First American Tax Defense duped vulnerable borrowers into paying for help that never arrived.
In her lawsuit against the companies and their operators, Lisa Madigan, the Illinois attorney general, contends the businesses lured borrowers into paying hundreds of dollars upfront, and in the case of Broadsword, $49.99 a month after that, according to copies of the lawsuits reviewed by The New York Times. The companies often misled customers about those fees, according to the lawsuits and, in some instances, feigned affiliation with federal relief programs.
In a particularly cruel twist, Madigan said, the companies sometimes charged customers for debt assistance that they could have received free from the Education Department.
“It’s just, unfortunately, the latest scam on the largest group of people who are struggling with the most debt,” Madigan said in an interview, noting that her office had been inundated with complaints about the debt settlement companies in the past year alone.
Representatives of both companies could not be reached for comment.
