Senate Passes Student Loan Scam Legislation

The U.S. Senate passed the Stop Student Debt Relief Scams Act on December 1, 2020 by unanimous consent. The legislation now proceeds to the U.S. House of Representatives for consideration.

The legislation makes it illegal to access U.S. Department of Education computer systems without authorization, including the unauthorized and fraudulent use of FSA IDs and other identification devices issued to another person.

FSA IDs are used to file the Free Application for Federal Student Aid (FAFSA), to apply for federal student loans and to login to U.S. Department of Education computer systems to manage the FAFSA and federal student loans.

Violations are subject to a fine of up to $20,000 and/or a prison term of up to five years.

The Stop Student Debt Relief Scams Act of 2019 (S. 1153) also requires student loan exit counseling to include warnings about third-party student debt relief companies. The services offered by these companies are already offered for free by the U.S. Department of Education and the borrower’s federal student loan servicer.

The Federal Trade Commission (FTC) and state attorneys general have cracked down on student debt relief scams through Operation Game of Loans. These services are illegal under federal and state law when they charge an up-front fee before the services are performed.

The new legislation closes a loophole that allows for operation of such services when the businesses do not charge an up-front fee. It requires these companies to comply with terms of service, information security standards and a code of conduct to be established by the U.S. Department of Education.

The legislation requires the U.S. Department of Education to detect common patterns of improper use of and block unauthorized access to the National Student Loan Data System (NSLDS) and other U.S. Department of Education information technology systems. The U.S. Department of Education must warn borrowers about suspicious activity affecting their student loan accounts.

Commercial entities may not use the FSA ID of a student, parent or borrower. Instead, they must use an FSA ID or other access device issued by the U.S. Department of Education to the entity.

The student, parent or borrower must then provide consent to the commercial entity before it can provide assistance in “managing loan repayment or applying for any repayment plan, consolidation loan, or other benefit.” This includes income-driven repayment plans, forbearance, deferments, consolidation loans, loan rehabilitation, loan cancellation and loan forgiveness.