Illinois AG sues student loan debt settlement firms.

The Chicago Tribune (7/15, Yerak, 2.3M) reports that Illinois Attorney General Lisa Madigan has filed suit against Broadsword Student Advantage LLC and First American Tax Defense LLC, claiming that the debt-settlement firms “perpetrated ‘scams’ against consumers trying to pay off their student loans.” The Tribune reports that the lawsuits mark the first time a state has targeted “firms offering to help consumers repay their student loan debts in exchange for as much as $1,200 upfront.” The Tribune reports that the lawsuit argues that the firms claim to have the power to negotiate lower payments and “get loans out of default,” when in reality, those options “are already available for free from” ED.

The AP (7/15, Tareen) reports that the lawsuits allege that the firms “are scamming people who are paying student loan debts,” and that they are engaging in “‘deceptive practices’ for charging up-front fees for phony services or for services that are already free.” Madigan said that her office has received dozens of complaints about the firms, and that their “advertisements on radio, online and signs affixed to lamp posts and fences offered student loan forgiveness or lowered payments.”

The Christian Science Monitor (7/14, Paulson, 566K) reports that Madigan “took aim Monday at the debt settlement industry – long a hotbed of scams.” The piece notes that experts say that such scams “have been a problem for some time, and that their current focus on student borrowers is not surprising, given the way student-loan debt has skyrocketed.” Madigan alleges that the firms “are in violation of several consumer-protection statutes and use fraudulent means to lure borrowers into using their services and paying heavy up-front fees.” The firms advertise that they would enroll consumers in “the ‘Obama Forgiveness Program’ – which does not exist – or for government services that anyone can use for free.”