Student debt isn't the only thing keeping fresh graduates up at night—there’s a growing industry of fraudsters that swindle millions of dollars from borrowers by promising to lower monthly student loan payments.

Following a lengthy investigation, the Federal Trade Commission (FTC) announced that it would reimburse 27,584 Americans who fell victim to these scams between 2014 and 2019. The total refund is $4.1 million, or roughly $147 per person. Payments will begin within 90 days.

The alleged scams used many names, including Mission Hills Federal, Federal Direct Group, National Secure Processing, and The Student Loan Group. In each case, the operators “lured consumers with fake loan forgiveness claims and pocketed their money,” the FTC said.

According to the FTC, the schemes “tricked students into paying hundreds of thousands of dollars in illegal upfront fees and pretended to lower consumers’ monthly student loan payments.”

Additionally, the fraudsters “tricked consumers into sending their monthly student loan payments directly to the defendants by falsely claiming to take over the servicing of the consumers’ loans.”

The FTC has warned of an influx of scams as more Americans struggle to pay back their student loans. Last August, the federal regulator and Department of Justice sent more than $9 million worth of checks to 22,562 people who were affected by the Ameritech Financial scheme.

According to University of New South Wales business professor Dr. Kam-Fung Cheung, financial desperation is a significant factor in why people fall for scams.

Many Americans find themselves in this situation upon graduating from college, often realizing that their wages barely cover living expenses—let alone student debt payments.

Is college really worth it? Data points to a mixed bag

With more than $1.7 trillion in outstanding student debt, millions of Americans are experiencing an insurmountable debt burden, especially when they first start their careers.

It’s not just the size of the debt load but also the growth rate at which that debt is growing that’s especially concerning.

Over the past decade alone, student loan debt balances have shot up 66%, according to Fed data. The average borrower now owes more than $37,000 upon graduation, according to Creditnews’ real-time student debt tracker.

Although college grads generally enjoy better career outcomes than non-grads, the earnings gap seems to be narrowing.

According to Georgetown University, people with only an associate’s degree earn between $1.4 million and $2.9 million over their working life, while Bachelor’s degree holders earn between $1.9 million and $4.1 million during their careers.

“More education doesn’t always get you more money,” wrote Anthony P. Carnevale, a research director at Georgetown University’s Center on Education and the Workforce. “There’s a lot of variation in earnings related to field of study, occupation, and other factors.”

Before there was data to track economic outcomes of higher education and college loans, “Students and families [...] had to accept it as an article of faith that taking on big college debt is still worth it,” wrote Josh Mitchell in an essay for The Wall Street Journal.

But that’s started to change, as “many households and employers no longer seem to think that college is ‘worth it,’” he said.

Millions of Americans were asking, “Was it worth it?” this past fall when they were required to resume student loan payments.

A “sobering moment”

After a more than three-year hiatus due to Covid, student loan payments resumed in October.

While data has been hard to come by, the Education Department reported that 40% of borrowers with payments due failed to settle their bills during the first month of repayment. Some activists say this was intentional, likening it to a “massive student debt strike” as Americans awaited progress on student debt relief.

As it turns out, many Americans thought that the day they’d have to resume payments would never come.

“A lot of people really enjoyed the pause and forgot how much they were paying and never thought that payments would return,” Chelsea Ransom, a managing partner at Zenith Wealth Partners, told the Financial Times. It was “a very sobering moment,” she said.

“People have been thinking, ‘we’ll be fine, we’ll get through this,’ but I think once you actually see it coming out of your pay cheque, that’s when the real reality bites and when we do see a shift coming through in terms of consumer attitudes,” said James Knightley, ING’s chief international economist.

For all the pain that student loan borrowers are facing, there’s also a silver lining. Last month, the Biden administration canceled another $1.2 billion worth of student loans, bringing the total forgiveness amount to $138 billion.

As Creditnews reported, more student loan forgiveness may be on the horizon.