July 14--Companies offering borrowers help with overwhelming student debt are often scams that take money up front without actually helping handle their clients' debts--making victims pay for sketchy solutions to problems that government programs could help solve for free, according to Illinois Attorney General Lisa Madigan.
Madigan announced Monday that Illinois is the first state to file suit against two allegedly scammy student debt relief companies, one of which--First American Tax Defense--is based in Chicago.
"The scam for them is preying on financially susceptible individuals by claiming that they can eliminate or reduce your student loan debt," Madigan said. "What they really do is demand your credit card number, your bank account number and immediately charge you as much as $1200."
It is illegal in Illinois to receive payment for debt settlement services before any such services have actually been rendered. Companies offering debt relief are required to be licensed. First American Tax Defense and Texas-based Broadsword Student Advantage violated both those laws, according to Madigan.
Neither company named in the lawsuits could be reached for comment Monday.
Outstanding student loan debt has reached $1.2 trillion nationwide, and the average Illinois borrower owes $26,400, according to Illinois Public Interest Research Group.
Madigan's office advised borrowers to contact the Consumer Financial Protection Bureau and the National Consumer Law Center for assistance on repaying student debt.
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