The firms in question seem rather shady in that they were charging students for services the government provides free of charge.

Kelly Field of the Chronicle of Higher Education reported.

Illinois Sues 2 Student-Loan Debt-Relief Firms

The attorney general of Illinois filed lawsuits on Monday against two student-loan debt-relief companies, accusing them of charging borrowers large fees to enroll them in free government programs.

According to the complaints, the companies—First American Tax Defense LLC and Broadsword Student Advantage LLC—duped struggling borrowers into paying as much as $1,200 for “bogus services” and for help in applying for free federal repayment plans, such as loan consolidation.

The lawsuits are the first state action against the growing debt-relief industry for student borrowers and could serve as precedent for lawsuits by other states. Already this year, a watchdog group established by New York’s governor, Andrew M. Cuomo, has sent subpoenas to 13 such companies as part of an investigation into misleading advertising and improper fees. Attorneys general in Arkansas and Minnesota have issued warnings about such businesses.

Last year the federal Consumer Financial Protection Bureau put out a “consumer advisory” reminding borrowers that “you don’t have to pay someone to help with your student loan.” Rohit Chopra, the bureau’s student-loan ombudsman, said it had received complaints about the companies’ marketing tactics and lack of transparency.

Some of the reports “remind us of the worst practices that emerged in the wake of the meltdown of the mortgage market,” when dozens of companies cropped up, promising relief to struggling homeowners, Mr. Chopra said. “Too often, this cottage industry was offering high fees with borrowers not getting much in return.”