The Federal Trade Commission and 11 states launched a sprawling offensive on Friday against companies that operate student loan debt relief scams — marking the first time that the government has run a coordinated nationwide effort against the industry.
Called "Operation Game of Loans," the crackdown included six actions against debt relief companies initiated by the FTC and 30 suits and actions filed by states, from North Dakota to Florida.
The targeted companies worked from essentially the same playbook: Prosecutors said they "bilked" hundreds of millions in fees from people who often falsely believed they were paying for student loan forgiveness. In return, many companies did nothing — or simply filled out income-based repayment paperwork that was available for free from the Education Department.
Student debt scams have spread like wildfire in recent years, sparked by the growing student debt crisis and often, as the FTC's settlements show, fueled by the internet — where companies use memes, search engine optimization, and celebrity endorsements to promote their shady, and sometimes illegal, services.
But these operations are almost impossible to stamp out. Most debt relief scams are fly-by-night businesses, with ever-changing telephone numbers, names, and addresses; once found out, they disappear, then reappear, like a game of whack-a-mole.
Alliance Document Preparation, for example — a company targeted for deceiving consumers out of more than $20 million — used a plethora of fictitious names, according to the suit: Grads United Discharge, Allied Doc Prep, Post Grad Services, Post Grad Aid, Alumni Aid Assistance, United Legal Discharge, First Grad Aid, Academic Aid Center, Academic Protection, and more.
The government has been going after student loan scammers from all angles. The CFPB shut down several companies and has repeatedly warned consumers against them. Under President Obama, the Education Department started an online campaign that aimed to educate consumers about companies' deceptive practices, and to show them the proper way apply for debt relief. And the Trump administration has also signaled it will make going after such companies a priority.
But the complicated system of federal student debt — which uses middlemen to communicate with borrowers about a large number of complex programs, sometimes with disastrous results — has left many borrowers confused and overwhelmed. Debt relief companies have particularly targeted students at for-profit colleges, taking advantage of people who are more likely to be in financial distress, and are less savvy about the aid system.
Molly Hensley-Clancy is a business reporter for BuzzFeed News and is based in Washington, DC. She covers the intersection of business and education.
Contact Molly Hensley-Clancy at email@example.com.
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