Education Loan Scams: How to Protect Yourself from Loan Fraud?

Did you know that in 2023, the CEO of a Bengaluru-based education loan assistance firm Geeklurn, was arrested for cheating almost 2,000 students of almost INR 18 crores? Well, undoubtedly education loans help students cut through the huge cost of pursuing higher education, both in India and abroad. But as the need for student loans increases, so does the chance of being a victim of loan fraud. Scammers take advantage of parents and students by offering fast loans, cheap or no interest rates, and approval guarantees, only to vanish after obtaining sensitive personal information or an advance payment. This blog will cover the most prevalent kinds of college loan fraud, actual cases, and advice on how to stay clear of them.

Common Education Loan Scams Students Face

1. Advance Fee Scams:

Scammers pretend to be loan providers and demand an upfront payment, which is sometimes passed off as an administrative or processing fee. The scammers disappear without giving the victim the loan after they have paid the cost. Before loan approval, a legitimate financial institution will never want upfront payments.

Know how long does it take to get an education loan?

2. Guaranteed Loan Approval Scams:

When granting a loan, credible lenders consider the borrower's financial history. Scammers, however, entice victims by guaranteeing immediate loan approvals without doing credit checks. Once they have personal information, these scammers may either demand upfront payments or vanish.

3. Loan Application Fraud:

When victims unknowingly give their personal information to fraudulent lenders, they become victims of loan application fraud. The information supplied is misused by scammers to commit identity theft or obtain loans in the victim's name.

4. Bank Loan Scam:

Sometimes scammers pose as bank employees to trick victims into believing they are providing a special education loan with reduced interest rates. To look authentic, they fabricate phone calls, emails, and websites.

5. Fake Scholarship and Grant Scams:

Students frequently get calls or emails informing them that they have won grants or scholarships, only to be required to pay a "processing fee" before they can access their winnings. Applicants are never asked to pay for genuine scholarships.

6. Loan Forgiveness and Debt Relief Scams:

Scammers target students who are in debt by offering debt relief or loan forgiveness in exchange for a fee. After making the desired payment, many victims discover that their loans are still overdue, which lowers their credit scores even further.

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Education Loan Scams in India

Scams involving education loans have increased in India, as students are duped by dishonest lenders. Recent complaints about school loans indicate that a large number of fraudulent institutions deceive students by promising quick loan approvals. According to some students, they were tricked into accepting loan contracts with unstated conditions that resulted in outrageous interest rates.

The Reserve Bank of India (RBI) warned of online loan fraud incidents in 2024, pointing out that a lot of fraudulent lenders were exploiting messaging applications and social media to trick borrowers. Under the guise of loan processing costs, these scammers frequently demand upfront payments while posing as representatives of reputable banks.

How to Protect Yourself from Education Loan Scams?

Education loan scams can ruin a student's financial and academic future. But as we know, prevention is better than cure. Below are listed some protective measures that can secure borrowers from possible scams.

1. Verify the Lender’s Credentials:

Before applying for an education loan, verify whether the lender is registered with a regulatory authority, such as the RBI or any other financial governing body.

2. Avoid Paying Upfront Fees:

No legitimate financial institution asks for payment before loan approval and disbursement. If you encounter such demands, it's likely a scam.

3. Beware of Unrealistic Offers:

Offers that guarantee a loan without credit checks, extremely low interest rates, or easy approval should raise red flags. Always compare the loan terms with those of reputable banks.

4. Check Official Communication Channels:

Banks and financial institutions communicate through official emails, websites, and registered phone numbers. Avoid responding to random calls or emails that request sensitive details.

5. Read Loan Agreements Carefully:

Before signing any loan documents, read the terms and conditions carefully to avoid hidden fees and unfair clauses.

6. Report Suspicious Activity:

If you suspect fraud, report it to the appropriate authorities, such as the RBI, the Better Business Bureau (BBB), or local law enforcement agencies.

Falling victim to an education loan scam can have devastating financial and emotional consequences. By staying informed about common scams, verifying lenders, and taking necessary precautions, students can protect themselves from loan fraud. If you or someone you know has encountered a bank loan scam or any fraudulent loan schemes, report it immediately to prevent further victimisation.

Taking an education loan is a huge financial responsibility, therefore, make sure that you trust reliable partners in this journey. Hence, we at GyanDhan registered with RBI, understand the struggles of a student. We are partnered with several public banks and have been in the industry for the past 8 years. Remember, Education is a valuable investment, don’t let scammers takeeadvantage of your aspirations.