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Madigan sues companies she says prey on students

Attorney General Lisa Madigan on Monday announced a new student loan helpline and lawsuits against five companies. | Sandra Guy/Sun-Times

Ruth Varela, a Richton Park resident, said Monday that she felt desperate to pay off her $6,000 student-loan debt after her income-tax return was garnisheed to help make the loan repayments last August.

She wanted help to pay off the balance of her student loan.

She did a Google search and thought she had found relief after she called the first company that popped up in the search.

“They promised me the moon and stars; that they would help me with my payments; that my payments would be very low and they’d assist me in any way I needed,” Varela, who aims to become a nurse, told a news conference in Illinois Attorney General Lisa Madigan’s office. Varela obtained her associate’s degree in 2005 at Olympia College in Merrionette Park.

“I fell for it,” said Varela, an unemployed 34-year-old single mother of a 16-year-old daughter and 11- and 12-year-old sons.

Varela asked that the company stop taking money from her bank account after she lost her job. When she asked them to start taking the money out again, the company refused to answer any other questions. Varela said that raised a red flag, and when she did another Google search, she found articles naming the company as a scam.

She had been allowing them to deduct $79.80 a month from her bank account — and that was after paying a $399 upfront fee. None of her payments was applied to her loan balance.

Varela isn’t alone.

Madigan announced Monday that she had filed five lawsuits against companies targeting people struggling to repay their student loan debt.

Madigan also announced a new helpline within her office to assist borrowers who hold student loans. Madigan’s Student Loan Helpline, 1 (800) 455-2456 (TTY: 1 (800) 964-3013), will be answered by trained staff in her office who can help borrowers understand their repayment options and how to avoid default. Callers to the helpline can also file complaints with Madigan’s Consumer Fraud Bureau if they have problems with their loans or complaints of similar student loan debt relief scams.

“The reason these scams work is because the advertisements are convincing,” Madigan said.

Desperate borrowers “don’t believe they have the expertise or ability to deal with the bureaucracy involved in student-loan repayments,” Madigan said.

“You are dealing with con artists,” she added. “They know how to play on people’s emotions.”

Madigan alleged that the scam operators charge borrowers hundreds to thousands of dollars in upfront fees with the false promise that they can relieve borrowers’ debt loads or have them forgiven entirely under programs endorsed by President Barack Obama’s administration.

“When people cannot make their loan payments, they don’t get to build the future that they dreamed about when they went to college,” she said, noting that their credit is hurt so that they have trouble buying cars or renting apartments, for example.

Madigan filed suit against Consumer Financial Resources LLC, of Texas, which operated as Student Loan Resolve; Federal Student Loan Alliance LLC, based in California; Interactiv Education LLC, based in Florida, that operated as Direct Student Aid; the Chicago-based Nationwide Student Aid, and Student Consulting Group Inc., based in Georgia, that solicited consumers as University of One and Help Assist Me Default Resolution Services.

Scott Frida, head of Student Loan Resolve, which Varela said she contacted, said Monday that he had not seen the complaint and could not comment. The others could not be reached immediately to comment.

The lawsuits allege the companies advertise heavily, offering borrowers a number of options to ease their debt burden based on the companies’ alleged expertise. In reality, Madigan alleges, the companies sought to scam desperate people into paying as much as $1,250 upfront for bogus services or free services, including assistance enrolling in loan forgiveness programs for public-service employees, including teachers, nurses, police officers, firefighters and employees of nonprofit organizations.

The companies advertise that they can stop wage garnishees, prevent or remove tax liens, reduce monthly payments or remove default status, Madigan said. Borrowers from around Illinois filed complaints against Interactiv Education, Consumer Financial Resources, Federal Student Loan Alliance, Nationwide Student Aid and Student Consulting Group, but none received the help promised by the companies’ advertisements, she alleged in the lawsuits, filed in Cook, Champaign and Sangamon counties.

Madigan’s lawsuits allege that the five companies are violating an Illinois law that she wrote to ban companies from charging people upfront fees for so-called debt settlement services.