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Soaring student debt opens the door to relief scams

The Wall Street Journal. logo The Wall Street Journal. 8/26/2019 Jean Eaglesham, Michael Tobin and Coulter Jones

Financial Preparation Services of Irvine, Calif., boasts on its website three glowing testimonials for its debt-relief services for student loans. It quotes Anthony Zwichirowski of California, Dawn Robinson of New Hampshire and a smiling Dean Edelman of Virginia, who says using the company “was the smartest move I have made since graduating.”

One or more of the three ostensibly happy borrowers also appears, with slight variations, on at least 25 other websites of purportedly different companies offering student-loan debt relief in the past four years, The Wall Street Journal found.

Student debt is soaring—it is now nearly $1.5 trillion—and defaults are at a record. That has been fertile ground for companies that promise to help stretched borrowers by navigating the maze of federal programs that can reduce or forgive debts for those who qualify, such as public-service workers or people on low incomes.

Some companies operate legally, although there is nothing they offer that borrowers can’t get free, regulators say. Other firms are outright scams, or make promises to borrowers that are illegal, regulators and consumer advocates warn.

Financial Preparation Services has submitted claims for federal relief based on fictitious information, according to a former employee. Sales teams within the company also switched regularly to using new corporate names and websites, the former employee said. The company is one of several about which federal regulators are demanding information, according to a bankruptcy court filing.

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Many of the websites on which the three testimonials are featured appear to be carbon copies, with only the company’s name changed. A few companies attributed the same quote to different people: Dean Edelman becomes Dean Ederman of California, for example. Other websites used the same names and photos with different quotes.

Financial Preparation Services didn’t respond to emails requesting comment, and couldn’t be reached by phone at the number listed on its website. The Journal wasn’t able to find Mr. Edelman, Mr. Zwichirowski and Ms. Robinson or ascertain whether they were indeed real people.

A record $89.2 billion of student loans was in default at the end of June, New York Federal Reserve data show. Of the $1.48 trillion outstanding, 11%, or $160 billion, was at least 90 days behind on repayments—and the true rate is likely double that, because only half the loans are currently in repayment.

“We’ll do the work for you,” Financial Preparation Services says on its website. “No more drowning in a sea of confusing paperwork and processing!” Its fee: $1,195 for document preparation, then $40 a month for almost 20 years—a total of $10,555—according to a 2018 client agreement reviewed by the Journal.

Regulators, including the Federal Trade Commission and the Consumer Financial Protection Bureau, share oversight of such companies. One issue they face is the sheer number of small firms offering these services, many using several names.

“This is a relatively target-rich environment,” Michelle Grajales, an FTC attorney, said in an interview. “There are unfortunately a lot of companies that still appear to violate the law.” Ms. Grajales didn’t comment on Financial Preparation Services specifically.

The regulator has filed nine civil cases against alleged student-loan debt-relief scams since 2017, involving a total of 77 different companies. Financial Preparation Services isn’t among those companies being sued.

Many of the FTC cases allege that the companies charged upfront fees for debt relief, which is illegal, or engaged in other prohibited practices such as masquerading as being government-approved, or faking information on applications for federal relief.

Stephanie Beger of Moscow Mills, Mo., a former teacher turned paralegal, says Financial Preparation Services promised to help reduce payments on her $109,000 of student loans when she contacted them in October in response to a text message. “I told them I was married, and we have two incomes and no children,” she said.

Ms. Beger signed up. In April, she says she got a notice from the government that a payment was due, and discovered when she called up that Financial Preparation Services had used false information about her to apply for debt relief. “I was told the paperwork said I was a single mother of six,” she said. She said she made clear that she had no idea what the company had submitted.

She complained to the Better Business Bureau. In response, Financial Preparation Services refunded the fees she had paid. The company wrote an online response on the BBB’s website: “We apologize for your negative experience…We will continue to perfect our process so mistakes do not happen on our clients accounts.”

A report by the Government Accountability Office in June identified “indicators of potential fraud or error” in the income-related student loan relief program, including 40,900 plans that were approved based on family sizes of nine or more.

Salespeople at Financial Preparation Services until recently often submitted claims showing a family size of six or seven to qualify callers for debt relief, without the borrower’s knowledge, a former employee told the Journal. It couldn’t be determined exactly why it changed the practice, but a company email seen by the Journal said that too many of its claims were being rejected.

Financial Preparation Services operates under several different identities, creating new websites every few months, the former employee said. A copy of a sales script, reviewed by the Journal, instructs salespeople when they call customers about payments: “MAKE SURE YOU HAVE THE RIGHT COMPANY NAME: Hi this is NAME with [COMPANY].” The Journal couldn’t determine the date of the script.

Consumer Advocacy Center—doing business as Premier Student Loan Center, whose website quoted identical testimonials to Financial Preparation Services—filed for chapter 11 bankruptcy in January.

It shut down because of lawsuits by former clients and “investigations from different state attorney generals,” according to a court filing. Despite pretax revenues last year of more than $19.4 million, the company had only $24,500 in its bank account when it filed the petition, the bankruptcy trustee said.

Albert Kim, the company’s owner, told a bankruptcy court hearing “the possibility of getting into a big lawsuit with, you know, federal regulators made it basically not worth it to continue at that point.”

Mr. Kim didn’t respond to requests for comment. His lawyer, Peter Levitt, didn’t respond to specific questions but said in a statement that Mr. Kim is committed to ensuring all the businesses he is affiliated with operate legally and to “identifying and correcting any compliance deficiencies.”

After the bankruptcy, Premier Student Loan Center’s operations appear to have carried on as Financial Preparation Services. In addition to the testimonials on multiple sites, both companies use the same Irvine address on their business license. The Journal also identified several employees who worked for companies with those names according to their social media accounts.

In July, the CFPB filed a subpoena in the Premier Student Loan bankruptcy case, demanding information be sent to the regulator and U.S. Attorney for the Southern District of Florida. The subpoena named eight companies, including Prime Consulting LLC, which does business as Financial Preparation Services, and 11 people, including Mr. Kim.

The CFPB didn’t respond to a request for comment. A spokeswoman for the U.S. Attorney for the Southern District of Florida declined to comment.

One of the companies named in the subpoena is True Count Staffing Inc., which does business as SL Account Management, also based in Irvine.

A representative declined to comment and the company didn’t respond to an email seeking comment.

Since the start of 2018, SL Account Management has racked up more than 70 complaints with the FTC, according to a public records request.

One borrower, who described himself as a “war veteran who just wanted to go to college to pursue happiness,” said last year in an FTC complaint that his tax returns and wages have been garnished, he has lost his truck, and “not 1 single cent of my debt has been diminished.”

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