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 navigate 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, the Wall Street Journal reported. Some companies operate legally, although there is nothing they offer that borrowers can’t get themselves for free, regulators say. Other firms are outright scams, or make promises to borrowers that are illegal, regulators and consumer advocates warn. 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 last four years. 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.
