Skip to main content

Udall and Heinrich Call for Investigation of Allegations that "Debt Relief" Firms are Exploiting Students

Enforcement needed to stop private companies from profiting off students participating in free federal repayment programs

WASHINGTON - U.S. Senators Tom Udall and Martin Heinrich have called on federal officials to investigate allegations that so-called "debt relief" companies have been using deceptive practices to profit from students seeking assistance in repaying their college loans.

The federal government provides tools to help students manage their college loans free of charge, but a new National Consumer Law Center report revealed that private companies are taking advantage of students by charging them up to $1,600 up front and $20-$50 in monthly fees to participate in these free federal repayment programs.

"Recently, I have heard of misleading ads geared towards New Mexico students and parents from organizations that aim to benefit from those who are not aware of the free borrower assistance programs provided by the federal government," said Udall. "Our students are amassing record levels of debt in order to achieve their higher education degrees, and we need to do everything we can to ensure that unethical business practices are not taking advantage of the ongoing student debt crisis."

"It's disturbing to think that unscrupulous, private companies are trying to profit off student borrowers at a time when they are struggling to pay off their loans and make ends meet," said Heinrich. "New Mexico students and their parents deserve to be protected from these deceptive and unethical practices."

In a letter to Secretary of Education Arne Duncan, Federal Trade Commission Chairwoman Edith Ramirez and Consumer Financial Protection Bureau Director Richard Cordray, the senators joined 21 of their colleagues in noting that the report also revealed numerous potential violations of consumer protection laws and found that many for-profit companies falsely claim to be connected with the Department of Education and other government agencies.

Americans currently owe more than $1 trillion in student loans and the overall financial burden from student loan debt is second only to debt from mortgage borrowing. New Mexico has seen an increase in student loan borrowing as tuition rates have risen across the state. Moreover, there have also been reports in New Mexico of untrustworthy advertisements and websites aimed at lowering student loan payments or providing cash assistance.


The full text of the letter follows:

Arne Duncan, Secretary
Department of Education
400 Maryland Avenue, SW
Washington, DC 20202

Edith Ramirez, Chairwoman
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580

Richard Cordray, Director
Consumer Financial Protection Bureau
1700 G Street, NW
Washington, DC 20552

July 11, 2013

Dear Secretary Duncan, Chairwoman Ramirez, and Director Cordray:

We write to call your attention to the recent National Consumer Law Center (NCLC) report "Searching for Relief: Desperate Borrowers and the Growing Student Loan ‘Debt Relief' Industry." We are deeply concerned by the report's findings, which indicate that some private companies are mischaracterizing federal student loan repayment programs as their own and charging exorbitant fees to enroll people in free government programs.

As you are aware, student loan debt stands at an overwhelming $1 trillion, and is currently second only to mortgage loan debt. The vast majority of this debt is owed to or guaranteed by the federal government. Over the years, Congress has created borrower assistance programs, such as Income-Based Repayment, loan consolidation, and forbearance options, to help borrowers manage their debt.

The government provides these tools to student loan borrowers for free. Yet, the NCLC report finds that a growing number of private companies are exploiting student loan borrowers to make a profit, charging up to $1,600 up front and $20-$50 in monthly fees to participate in free federal repayment programs. This is simply unacceptable.

In addition to charging money for free government programs, the report found that companies are falsely implying an affiliation with the Department of Education or other government agencies, failing to safeguard consumer financial information, and possibly violating the Credit Repair Organizations Act and the Telemarketing Sales Rule by requiring payment before providing any assistance.

We urge you to look closely at all of these issues. Existing law should be enforced, and new rules should be considered where appropriate. We owe it to student loan borrowers - and to taxpayers - to ensure that unscrupulous businesses are not taking advantage of the student debt crisis.

Federal student loan repayment should be manageable and free from misinformation. We look forward to collaborating with you to protect student loan borrowers and their families from financial exploitation and abuse.

Sincerely,


Barbara Boxer
United States Senator

Tom Harkin
United States Senator

Jay Rockefeller
United States Senator

Elizabeth Warren
United States Senator

Kirsten Gillibrand
United States Senator

Brian Schatz
United States Senator

Jack Reed
United States Senator

Richard Blumenthal
United States Senator

Ron Wyden
United States Senator

Dianne Feinstein
United States Senator

Ben Cardin
United States Senator

Al Franken
United States Senator

Patty Murray
United States Senator

Mark Warner
United States Senator

Carl Levin
United States Senator

Heidi Heitkamp
United States Senator

Mark Udall
United States Senator

Martin Heinrich
United States Senator

Debbie Stabenow
United States Senator

Jeff Merkley
United States Senator

Claire McCaskill
United States Senator

Tom Udall
United States Senator

Barbara Mikulski
United States Senator

Date