37,800 student-loan borrowers are getting $3.3 million worth of checks in the mail after a debt relief company 'falsely' promised loan forgiveness but instead 'pocketed customers' payments,' a federal watchdog says

• The FTC accused Arete Financial Group of scamming student-loan borrowers out of $3.3 million.
• It will be sending checks in the mail to 37,800 borrowers it says were harmed by the company.
• Specifically, the FTC said the group promised debt relief but instead pocketed consumers' payments.

A top consumer watchdog just cracked down on yet another company it said scammed student-loan borrowers out of millions of dollars.

Last week, the Federal Trade Commission announced that it is sending checks totaling over $3.3 million to 37,800 student-loan borrowers who gave money to Arete Financial Group, a debt-relief company. According to the FTC's press release, Arete Financial pretended to be affiliated with the Education Department and "falsely" promised borrowers debt relief, but instead, "pocketed customers' payments and never provided the promised relief."

"Defendants promised consumers that in exchange for the payment of upfront fees and subsequent monthly fees, they would reduce or eliminate consumers' student loan balances," the FTC said. "However, Arete Financial regularly failed to reduce or eliminate consumers' loan balances or monthly payments."

The FTC first made these allegations in 2019, accusing Arete and several other companies of scamming borrowers and charging illegal upfront fees under the guise of student-loan forgiveness. Borrowers involved will soon receive a check in the mail that should be cashed within 90 days from the refund administrator JND Legal Administration, which partners with the FTC to facilitate refund processes. Arete Financial Group could not immediately be reached for comment.

This is far from the only scam student-loan borrowers have fallen victim to. Over the past few years, the FTC has sent refunds to borrowers following a number of different scams — for example, in May, the watchdog announced it stopped two "student loan debt relief schemes" that it said cheated borrowers out of about $12 million by making deceptive claims about relief that did not exist. In December, the FTC sent checks to another 23,000 borrowers after it accused five companies of illegally charging debt relief fees and misrepresenting interest rates.

It's an especially precarious time for millions of student-loan borrowers as they await a Supreme Court decision on President Joe Biden's plan to cancel up to $20,000 in student debt for federal borrowers. Regardless of the outcome of the decision, payments are scheduled to resume in October, with interest beginning to accrue again in September after an over three-year payment pause. The Education Department previously warned this resumption could be a breeding ground for scams.

In October, before two conservative-backed lawsuits paused the implementation of Biden's debt relief, the White House and Education Department released a fact sheet on preventing scams during the loan forgiveness process. Those actions included a list on how borrowers can detect scams, coordination with the FTC and Consumer Financial Protection Bureau to report scams in real time, and launched outreach campaigns to borrowers with accurate information on student loans.

"As Americans struggle with massive student loan debt and uncertainty around the prospect of forgiveness, scammers are looking to cash in," Samuel Levine, Director of FTC's Bureau of Consumer Protection, said in a May statement. "These lawsuits to shut down student loan debt relief schemes continue the agency's crackdown on junk fees, unwanted calls, and financial exploitation."