U.S. to reimburse more than $4.1 million lost to loan forgiveness scams as FAFSA problems persist

The victims sent money to alleged scammers such as Mission Hills Federal, Federal Direct Group, National Secure Processing, and The Student Loan Group under the guise that these companies were working to help them reduce their monthly loan payments.

In a 2019 FTC lawsuit, the agency argued that these operators claimed to be making payments on individuals’ student loans but were actually pocketing most, and in some cases all, of the money.

According to the lawsuit: “Consumers have often ended up owing more on their student loans after signing up for Defendants’ services based on interest that accrued while Defendants failed to repay consumers’ loans.”

The announcement by the FTC is just the latest action taken by the federal government to help provide relief for student debt incurred through fraud or misrepresentation.

In September 2023, the Department of Education announced that it was going to approve loan forgiveness to people who attended the University of Phoenix, which, the FTC argued, made deceptive job placement claims. Approximately $50 million has been returned to former University of Phoenix students.

Elsewhere, in attempting to help more students, the Biden Administration is highlighting its latest loan forgiveness measure—3.9 million borrowers having $138 million in debt canceled—but that’s been overshadowed by problems with the new Free Application for Federal Student Aid, or FAFSA.

After months of delays, the Department of Education finally began sending students’ required financial information to schools, according to the Associated Press. The delay caused around 200 higher education institutions to postpone a May 1 deadline for students to confirm.

The rollout of the new FAFSA, which Congress approved in December 2020 and promised a simplified process for students to submit information to schools, has been marred by glitches and other delays.

“This is doing exactly the opposite of what the entire intention of financial aid is: for students to go to college,” Brenda Buzynski, director of student financial aid at the University of Iowa, told Fortune in February.