Don't Mess With Taxes

You've had that student loan for what seems like forever. So naturally, you're eager to take advantage of the debt forgiveness offered by the Biden Administration.

But don't act too quickly or you could be a scam victim.

Soon after President Joe Biden announced his plan that will erase in some cases up to $20,000 in undergraduate student loans, consumer advocates had some suggestions of their own.

Beware of perps on the prowl with promises that they can get rid of your student loan obligation more quickly. Or get you even more loan relief if the federal plan doesn't cover all your college borrowing. Or help you avoid state taxes that apply to your canceled student debt.

All of these offers of help, most often by phone or email, will only help the scammers steal your money.

Old scams, new hooks: Scams targeting students burdened by debt aren't new. But the Biden student debt relief program has provided them with a new hook.

The crooks also are latching on to the separate federal student loan payment pause that's been extended to Dec. 31.

"You don't need to do anything or pay anybody to sign up for the new program — or the pause. Nobody can get you in early, help you jump the line, or guarantee eligibility. And anybody who says they can — or tries to charge you — is (1) a liar, and (2) a scammer," says K. Michelle Grajales, an attorney with the Federal Trade Commission's (FTC's) Division of Financial Practices.

Scam warning signs: Long-time readers of the ol' blog know that all scams, tax and otherwise, share many traits. Be on lookout for them in their new student loan relief iteration.

Crooks rely on our natural tendency to want help as quickly as possible. Scammers encourage their targets to act fast, saying they may miss qualifying for loan forgiveness or other assistance if they don't immediately sign up. Like before hanging up the phone or closing your email. Don't fall for it.

Criminals want an upfront fee to help you. They promise that with just a little cash in advance, they'll be able to get you to the front of the relief line or get you even more loan forgiveness. That's not true. In fact, it's illegal for companies to charge before they help you. But scammers are hoping you'll fall for this so they can take your cash and disappear.

Con artists want your personal information, too. In some cases, the crooks will ask for your Federal Student Aid identification number and password, or more personal data, in order to get you your loan relief. Don't give them any info, loan related or other, as the crooks will use it to steal your identity.

Crooks get creative, so beware of communications that look official. Emails might have what appears to be a Department of Education (DoE) logo or other federal identifies to try to convince you it's from a legitimate source. But the DoE isn't sending out unsolicited emails to students seeking loan relief. Don't click on any links in the email. Instead, if you have questions about your federal loans, head directly to the Education Department's official student financial aid website.

Scammers offer help where none is available. The Biden student loan relief plan won't cost you anything as far as federal taxes, but some states might collect tax on your canceled debt amount. Don't be surprised if a crooks say they'll be able to erase that state tax bill. They won't. Only state legislatures can make the law changes to ease this state tax cost.

If you find you do owe added state tax on the relief, touch base with your tax adviser or your state tax officials about options to pay off the unexpected tax bill. Do not let a con artist talk you into letting them take care of this for you.

Ways to get legit loan help: Instead, the FTC recommends you take the following steps.

Check with your federal loan servicer. Be sure you know who they are, and that they have your most recent contact info. That will help you get the latest on the cancellation and pause.

Sign up for Department of Education updates. This will get you notifications when the student loan relief process has officially opened.

Look into the Public Service Loan Forgiveness (PSFL) program. It's another separate program for which you might be eligible. With the PSFL, qualifying borrowers get federal student loan forgiveness after making 120 qualifying payments. And until Oct. 31, the limited waiver offers additional credit for time that previously didn't count. The online PSLF Help Tool has more information.

Report scam attempts: Finally, if you do spot a student loan relief scam, report it to the FTC at ReportFraud.ftc.gov. Also let your state's attorney general know.

Getting the word out will help law enforcement officials track down and stop this latest round of student loan relief scammers.

You also might find these items of interest:

• Comparing education tax credits
• Welcome federal student debt relief could create some state tax issues
• Tax-favored retirement saving options for freed-up student debt money

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