Debt Relief and Student Loan Forgiveness Scams: Signs and Your Rights

A debt relief or student loan scam is a company that promises to shrink, settle, forgive or erase what you owe, then takes your money before it does anything. The clearest sign is an upfront fee. When debt relief is sold by telephone, federal rules bar the seller or telemarketer from charging until it has actually settled or changed at least one of your debts and you have made a payment under that deal (16 C.F.R. § 310.4(a)(5)). A credit repair company cannot take your money until its services are fully performed (15 U.S.C. § 1679b(b)). And for federal student loans, StudentAid.gov is direct: "You never have to pay for help with your federal student aid (including federal student loans)."

The other tells: a promise to wipe out your loans or remove accurate negative marks from your credit report, a request for your FSA ID, pressure to sign up before a forgiveness "deadline," and a foreclosure rescue company that wants a fee before your lender has made you an offer. Any one of them is reason to stop and check.

If you already paid or shared your information: stop all further payments to the company. If you gave anyone your FSA ID or signed a third-party authorization or power of attorney, contact your loan servicer yourself (not through the company) and confirm your payments are reaching your loans. Then contact your bank or the payment service you used, report the company at ReportFraud.ftc.gov and to your state attorney general, and see our guide on what to do when a scammer has your information.

Information last verified on October 3, 2026. This article has not been reviewed by a licensed lawyer.

Jurisdiction scope: This guide covers United States federal law and federal agency guidance: the Telemarketing Sales Rule's fee limits for debt relief and credit repair (16 C.F.R. § 310.4), the Credit Repair Organizations Act (15 U.S.C. § 1679a and following sections, cited section by section below), and the mortgage assistance relief rule known as Regulation O (12 C.F.R. part 1015), plus guidance from the FTC, the CFPB and the U.S. Department of Education. It does not cover state laws on debt settlement, credit services or foreclosure consultants, or the rules for collecting a debt you owe; for those collection rules, see our debt collection laws guide. Each state also has its own guide in our scams and fraud section.

Warning signs of a debt relief or student loan scam

These tells come from the FTC, the CFPB and the Department of Education. Several of them are also lines that federal law draws, which the next sections explain.

They want money before they help

StudentAid.gov lists this among its debt relief red flags: "They require you to pay up-front or monthly fees for help." The FTC puts it plainly for student loans: "It's illegal for companies to charge you before they help you reduce or get rid of your student loan debt." The federal advance-fee ban behind that statement, in the Telemarketing Sales Rule, applies to debt relief sold by telephone; either way, help with federal student loans is free from StudentAid.gov and your servicer.

The same pattern runs through every kind of debt pitch. The FTC says a debt settlement company "can't collect its fees from you before they settle your debt," that scam credit repair companies insist you pay before they help, and that credit counselors who "charge you a lot of money before doing anything" are a red flag. The CFPB says that if a company "requires you to pay an up-front fee or tries to make you sign a contract on the spot, it is likely a scam."

Watch how they want to be paid, too. The FTC says credit repair scammers may ask you to pay "using cryptocurrency, wiring money through a company like MoneyGram or Western Union, or putting money on a gift card," and that mortgage relief scammers ask for a "cashier's check, wire transfer, or a mobile payment app."

They promise to wipe out your debt or clean up your credit

StudentAid.gov: "No one can promise immediate and total loan forgiveness or cancellation." The FTC adds that "No one can get you into loan forgiveness programs you don't qualify for or wipe out your loans," and the CFPB says "Credit repair and debt settlement companies cannot remove debts that you legally owe."

Credit repair has its own version of this promise. The FTC says "No one promising to repair your credit can legally remove information if it's both accurate and current." The FTC also calls it a scam when a company promises to create a new credit identity or hide your bad credit history or bankruptcy. It says these companies often use stolen Social Security numbers, or get people to apply for Employer Identification Numbers from the IRS under false pretenses, and that a consumer who goes along "could face fines or prison."

They ask for your FSA ID

StudentAid.gov flags any company that asks for your FSA ID username and password, and says: "ED or its partners will never ask you for your FSA ID password." It explains why this matters: "Your FSA ID is used to sign legally binding documents electronically. It has the same legal status as a written signature."

The FTC says "Only scammers say they need it to help you." It warns that a scammer with your FSA ID "could cut you off from your loan servicer," or even steal your identity.

They want you to sign an authorization or power of attorney

StudentAid.gov flags a request to "sign and submit a third-party authorization form or a power of attorney." It explains the motive: "Debt relief companies often want these authorizations so that they can change your account and contact information, so you don't realize that they aren't actually paying your monthly student loan bill."

That is how a student loan scam can cost far more than the fee. You keep paying the company, the company does not pay your loan, and your servicer's notices go somewhere else. The CFPB's version of the warning: "Beware of any company that cuts off communication between you and your servicer."

They say the offer is limited or the deadline is now

StudentAid.gov lists "They claim that their offer is limited and encourage you to act immediately" as a red flag. It quotes pitches such as "Your student loans may qualify for complete discharge. Enrollments are first come, first served." and "Student alerts: Your student loan is flagged for forgiveness pending verification. Call now!" The Department says messages like these "are NOT coming from the U.S. Department of Education (ED) or its partners."

They claim a special deal or a government connection

According to StudentAid.gov, "student loan debt relief companies do not have the ability to negotiate with your federal loan servicer for a 'special deal' under the federal student loan programs," and "Payment levels under income-driven payment plans are set by federal law." Operators in FTC cases have been accused of pretending to be connected to the Department of Education or loan servicers; our guide to government impersonation scams covers that tactic in general.

Knowing your balance or account number proves nothing. The FTC says scammers "might even know things about your loan, like the balance or your account number," and the CFPB says scammers "sometimes unlawfully get personal information about you from your credit report."

They tell you not to talk to your lender or the credit bureaus

The FTC says credit repair scammers tell you not to contact the credit bureaus directly, tell you to dispute information you know is accurate, and may tell you to lie on credit or loan applications or to file a false identity theft report. For mortgages, Regulation O prohibits a mortgage relief company from representing "that a consumer cannot or should not contact or communicate with his or her lender or servicer" (12 C.F.R. § 1015.3(a)).

Foreclosure rescue: fees, deeds and "audits"

The FTC describes several mortgage relief schemes: phony counseling, forensic audits, rent-to-buy deals that begin with "If you give us the deed," equity skimming, bait-and-switch "rescue" loans, and mailers inviting you into a "mass joinder lawsuit," which the FTC notes are "not class action lawsuits." On deed schemes it warns: "Transferring the deed does not transfer the mortgage, so you'll still owe payments."

Federal law on debt relief fees: the Telemarketing Sales Rule

The FTC's Telemarketing Sales Rule (TSR) defines a debt relief service as "any program or service represented, directly or by implication, to renegotiate, settle, or in any way alter the terms of payment or other terms of the debt between a person and one or more unsecured creditors or debt collectors" (16 C.F.R. § 310.2(o)). Note the word "unsecured." A mortgage is secured debt, and mortgage relief has its own rule, Regulation O (below).

The TSR covers telemarketing, meaning sales made through a campaign that uses the telephone and involves more than one interstate call (16 C.F.R. § 310.2). It does not cover a sale that is completed only after a face-to-face sales presentation (16 C.F.R. § 310.6(b)(3)). The advance-fee ban is in 16 C.F.R. § 310.4(a)(5)(i). It prohibits:

"Requesting or receiving payment of any fee or consideration for any debt relief service until and unless: (A) The seller or telemarketer has renegotiated, settled, reduced, or otherwise altered the terms of at least one debt pursuant to a settlement agreement, debt management plan, or other such valid contractual agreement executed by the customer; (B) The customer has made at least one payment pursuant to that settlement agreement, debt management plan, or other valid contractual agreement"

A third condition, in § 310.4(a)(5)(i)(C), limits the size of each fee. The fee for each settled debt must either bear "the same proportional relationship to the total fee ... as the individual debt amount bears to the entire debt amount," or be "a percentage of the amount saved." If it is a percentage, "The percentage charged cannot change from one individual debt to another."

When a company may ask you to set money aside

Many debt settlement programs ask you to save money in a dedicated account while they negotiate. Under § 310.4(a)(5)(ii), that is allowed only if all of these are true:

1. The money is "held in an account at an insured financial institution."
2. You own the funds and are paid the interest they earn.
3. The company running the account is "not owned or controlled by, or in any way affiliated with, the debt relief service."
4. That account company does not give or accept referral payments from the debt relief company.
5. You "may withdraw from the debt relief service at any time without penalty, and must receive all funds in the account ... within seven (7) business days" of asking.

A company that wants money paid to itself before it has settled anything does not fit this exception.

Calling the number in an ad does not remove the protection

The TSR exempts some calls that a customer starts in response to an ad. That exemption "does not apply to" calls a customer makes "in response to an advertisement relating to ... debt relief services" (16 C.F.R. § 310.6). So if you dialed a number from a debt relief ad, the advance-fee ban still applies to that sale.

The rule also requires a debt relief seller to give you its required disclosures "before the consumer enrolls in an offered program" (16 C.F.R. § 310.3(a)(1)).

Even legitimate debt settlement has risks

The FTC notes that debt settlement programs "often encourage you to stop making any monthly payments to your creditors," that "you could even be sued while you're waiting for a settlement," and that "Any savings you get from debt relief services could be considered income and taxable." If you stopped paying creditors on a company's advice, our debt collection guide explains your rights when collectors call.

Credit counseling is different from debt settlement, and it has its own warning signs. The FTC says scammy counselors "promise to fix all your problems," and that "Just because an organization is a non-profit doesn't guarantee its services are free or affordable." For housing counseling, the FTC names HUD at 800-569-4287. For the counseling required before bankruptcy, it points to the U.S. Trustee Program's list.

Student loan relief: help with federal loans is free

StudentAid.gov says "ED and our federal loan servicers will never charge fees to help borrowers with their student loans." The FTC sends borrowers to StudentAid.gov/repay for free help with federal loans and, for private student loans, says to "go straight to your loan servicer." The CFPB's advice is to work with "one of the government's official loan servicers or websites with '.gov' in their addresses."

The FTC has brought cases against student loan relief operators, charging violations of the TSR among other laws. Two examples, both described in FTC press releases as allegations:

• 2019, Mission Hills Federal and Federal Direct Group. The FTC alleged an operation that took more than $23 million, used consumers' FSA IDs to "change consumers' contact information," and "applied none of the payments to the loans." It charged violations of the FTC Act and the TSR. The FTC's Bureau Director said: "Debt relief companies can't collect advance fees or masquerade as federal student loan servicers."
• 2026, NERD Solutions and ED REF. A federal court in California entered a temporary restraining order on April 13, 2026. The FTC alleges the operation cold-called people, "thousands of whom are on the National Do Not Call list," pretended to be affiliated with the Department of Education or loan servicers, charged "illegal upfront monthly fees as high as $1,400," and took "at least $8.8 million." The FTC's release says "The case will be decided by the court."

Federal law on credit repair: the Credit Repair Organizations Act

The Credit Repair Organizations Act (CROA) covers anyone who sells services "for the express or implied purpose of improving any consumer's credit record, credit history, or credit rating" (15 U.S.C. § 1679a). Its core rule, in 15 U.S.C. § 1679b(b):

"No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed."

CROA also requires:

• A disclosure before any contract. It must tell you that "neither you nor any 'credit repair' company or credit repair organization has the right to have accurate, current, and verifiable information removed from your credit report." It adds: "The credit bureau must remove accurate, negative information from your report only if it is over 7 years old. Bankruptcy information can be reported for 10 years." (15 U.S.C. § 1679c(a))
• A signed, written, dated contract and a wait. No services may be provided without one, or "before the end of the 3-business-day period beginning on the date the contract is signed." The contract must state the payment terms including the total amount, "a full and detailed description of the services," any guarantees, the estimated completion date or period, and the company's name and principal business address (15 U.S.C. § 1679d).
• A right to cancel. You may cancel "without penalty or obligation ... at any time before midnight of the 3rd business day which begins after the date on which the contract ... is executed." The company must give you a "Notice of Cancellation" form in duplicate, plus a copy of the contract and the required disclosure (15 U.S.C. § 1679e).

CROA's prohibitions include untrue or misleading statements to a credit bureau or creditor about your creditworthiness, statements meant to alter your identification to hide credit information that is "accurate and not obsolete," and fraud or deception in selling credit repair (15 U.S.C. § 1679b(a)).

If a company violates CROA, it can be liable for the greater of your actual damages or "any amount paid by the person to the credit repair organization," plus any punitive amount the court allows, costs and attorney fees (15 U.S.C. § 1679g). The FTC and state attorneys general can also enforce the law (15 U.S.C. § 1679h).

The definition has exclusions. It does not include "any nonprofit organization which is exempt from taxation under section 501(c)(3)," creditors restructuring a consumer's debt to them, or banks and credit unions (15 U.S.C. § 1679a). A 501(c)(3) nonprofit can therefore fall outside CROA. Keep in mind the FTC's caution about counselors: nonprofit status does not guarantee a service is free or affordable.

Credit repair sold by phone has a second rule. Under the TSR, a company that says it can remove derogatory information from, or improve, your credit history cannot charge until the promised time frame has passed and it gives you "a consumer report from a consumer reporting agency demonstrating that the promised results have been achieved, such report having been issued more than six months after the results were achieved" (16 C.F.R. § 310.4(a)(2)).

Mortgage and foreclosure relief: Regulation O

Mortgage relief companies are covered by Regulation O (12 C.F.R. part 1015). The FTC's consumer guidance calls it the Mortgage Assistance Relief Services (MARS) Rule and says "it's illegal for a company to charge you a penny until it's given you a written offer for a loan modification or other relief from your lender," and you accept that offer.

The regulation itself, at 12 C.F.R. § 1015.5(a), bars a provider from requesting or receiving any fee "until the consumer has executed a written agreement between the consumer and the consumer's dwelling loan holder or servicer incorporating the offer of mortgage assistance relief the provider obtained from the consumer's dwelling loan holder or servicer." Section 1015.5 also requires a disclosure headed "IMPORTANT NOTICE: Before buying this service, consider the following information." and a notice telling you about material differences between your lender's or servicer's offer and what the provider promised.

Regulation O also bars a provider from misrepresenting an affiliation with the U.S. government, a government program, a housing counselor, or your lender or servicer (12 C.F.R. § 1015.3(b)(3)).

Licensed attorneys have a limited exemption. An attorney who provides the services "as part of the practice of law," is licensed in the consumer's or the home's state, and complies with state law is exempt from Regulation O except its advance-fee section, and can be exempt from that section too if the money is placed in a client trust account under the state's trust-account and licensing rules (12 C.F.R. § 1015.7). A company calling itself a law firm is not, by that label alone, proof that it is legitimate.

For free help, the FTC points homeowners to their servicer and to a HUD-approved housing counselor.

What to do now

If you are dealing with one of these companies, or already paid one:

1. Stop paying the company. Do not send another fee. Contact your bank or payment service about stopping future payments and disputing past ones. Our guide on how to get money back after a scam explains what each payment method allows.
2. Contact your loan servicer or lender directly. Use contact details from StudentAid.gov, your billing statement or your lender, not from the company. Confirm that your payments are reaching your loan, that the contact information on file is yours, and whether any third-party authorization is on the account.
3. Treat a shared FSA ID as compromised. Because your FSA ID works like a legal signature, sign in at StudentAid.gov yourself and review your account. If you also gave a Social Security number, bank details or other personal information, follow our guide on what to do when a scammer has your information.
4. Check your credit reports. The FTC says you can get free credit reports weekly at AnnualCreditReport.com. Look for accounts or inquiries you do not recognize.
5. If you signed a credit repair contract in the last few days, CROA lets you cancel without penalty before midnight of the third business day after the contract was signed (15 U.S.C. § 1679e).
6. If you stopped paying creditors, contact them, and read up on your rights with debt collectors. The FTC warns you could be sued while waiting for a settlement.
7. Watch for a second scam. In a 2025 release about refunds to student loan scam victims, the FTC said: "The Commission never requires people to pay money or provide account information to get a refund."

Some operations aim at older people. In 2025 the FTC alleged that one debt relief operation, "Accelerated Debt," took "an estimated $100 million, primarily targeting older consumers, some of whom are veterans." A court temporarily halted it when the FTC announced the case; the claims are allegations. If you are helping a parent or grandparent, see our elder fraud guide.

Where to report a debt relief or student loan scam

• FTC: ReportFraud.ftc.gov. Each FTC consumer page on debt relief, student loans, credit repair and mortgage relief cited here names it.
• Your state attorney general: the FTC also recommends reporting debt relief, credit repair and mortgage relief scams to your state attorney general.
• CFPB: StudentAid.gov tells people who paid for financial aid help and did not get what was promised to contact the FTC and the Consumer Financial Protection Bureau.
• Your loan servicer or lender: tell them what happened so they know about the company.

Our guide on where to report a scam explains what each agency does with a report.

When a lawyer can help

CROA lets you sue a credit repair company that violates it and recover at least what you paid it, plus costs and attorney fees if you win (15 U.S.C. § 1679g). Our guide on when a lawyer helps after a scam explains when hiring one makes sense.

Related guides

• Scams and fraud: federal law, state guides and how to protect yourself
• How to get money back after a scam
• Where to report a scam
• A scammer has my information: what to do
• Government impersonation scams
• Phishing, smishing and vishing
• Elder fraud
• When a lawyer helps after a scam
• Debt collection laws
• How to Tell if Something Is a Scam

Last updated: October 3, 2026.

This article is general legal information, not legal advice. It covers US federal law and federal agency guidance as verified on October 3, 2026. For your specific situation, contact your loan servicer or lender, the agencies named above, or a lawyer licensed in your state.

Frequently Asked Questions

Is it legal for a debt relief company to charge upfront fees?

Not when the Telemarketing Sales Rule applies, which covers debt relief sold by telephone but not a sale completed after a face-to-face meeting. Under 16 C.F.R. 310.4(a)(5), a seller or telemarketer of debt relief cannot request or receive a fee until it has settled or changed at least one debt and you have made at least one payment under that agreement.

Do I have to pay for help with student loan forgiveness?

No. StudentAid.gov says you never have to pay for help with your federal student aid, including federal student loans. Free help is at StudentAid.gov and through your loan servicer.

Is it safe to give a company my FSA ID?

No. The Department of Education says it and its partners will never ask for your FSA ID password, and your FSA ID has the same legal status as a written signature. The FTC says only scammers say they need it.

Can a credit repair company remove late payments or collections from my credit report?

Not if the information is accurate and current. The FTC says no one can legally remove accurate, current information, and the disclosure required by 15 U.S.C. 1679c says the same.

When can a credit repair company charge me?

Only after its services are fully performed, under 15 U.S.C. 1679b(b). It also needs a signed, written, dated contract, and you can cancel without penalty before midnight of the third business day after signing (15 U.S.C. 1679e).

Can a foreclosure rescue company charge before helping me?

Under Regulation O, 12 C.F.R. 1015.5(a), a mortgage relief provider cannot request or receive a fee until you have signed a written agreement with your lender or servicer that includes the offer the provider obtained. Licensed attorneys have a limited exemption under 12 C.F.R. 1015.7.

What should I do if I already paid a student loan relief company?

Stop paying the company, contact your loan servicer directly to confirm your payments are reaching your loan, and secure your StudentAid.gov account if you shared your FSA ID. Then contact your bank or payment service and report the company at ReportFraud.ftc.gov.

Where do I report a debt relief or student loan scam?

Report it to the FTC at ReportFraud.ftc.gov and to your state attorney general. StudentAid.gov also tells people who paid for financial aid help that was not delivered to contact the FTC and the Consumer Financial Protection Bureau.

Can I sue a credit repair company?

The Credit Repair Organizations Act lets you recover the greater of your actual damages or what you paid the company, plus any punitive amount a court allows, costs and attorney fees (15 U.S.C. 1679g).