Student loan borrowers can now have one less company trying to sell them for help with their loans.
Regulators and state law enforcement are scrutinizing companies claiming to offer borrowers help managing their student loans, warning consumers that companies are selling them something too good to be true. But a company has just emerged from the government on its own.
Student Aid Center Inc. filed for bankruptcy earlier this week, claiming between $ 500,001 and $ 1 million in assets and between $ 1,000,001 and $ 10 million in estimated liabilities. The company is part of a burgeoning industry of student debt relief firms that regulators have accused of preying on desperate borrowers for help with their student loans.
Businesses use social media and other forms of advertising, often involving an affiliation with the Department of Education, to entice borrowers to pay high fees to enroll in government programs they could take advantage of for free, according to consumer advocates. The Consumer Financial Protection Bureau and state attorneys general have sued some of these companies, accusing them of violating consumer protection laws.
The Education Department sent cease and desist letters to two student debt relief companies last month, asking the companies to stop using the agency’s logo. This was the Ministry’s first legal action against companies claiming to offer student loan assistance.
The Student Aid Center bankruptcy comes months after Minnesota Attorney General Lori Swanson filed a lawsuit against the company, accuse the company of misrepresenting itself to borrowers by telling them that it might help them qualify for loan cancellation programs, that it would ‘take over’ or pay off borrowers’ loans and by lying about how much the loan would decrease with the help of their services. In addition, the company charged between $ 500 and $ 1,500 to enroll borrowers in government programs that they could otherwise access for free, according to the Swanson lawsuit.
Adam Minsky, a lawyer specializing in student loan issues, said the Student Aid Center bankruptcy could make it harder for borrowers affected by the company’s shares to recoup their losses in the event Swanson settles with the bankruptcy. ‘business. Filing for bankruptcy is often a sign that a business is insolvent or does not have the money to meet its financial obligations. If this is the case, it may be difficult for consumers to obtain relief.
Minsky said he was not surprised to see this type of company file for bankruptcy after action by regulators, given how their business is typically structured to rely heavily on customer fees for them. income.
“Since they don’t really have a lot of infrastructure and capital beyond that, I think when a business is targeted for unfair or deceptive business practices by the state attorney general’s office, it doesn’t not much to fall back on, ”he said. “It’s no surprise that the result is bankruptcy.
The student aid center was also the target of a class action lawsuit filed last year, which accused the company of illegally calling consumers and offering its services, even to people without student loan.
A lawyer for the Student Aid Center did not immediately respond to a request for comment.