When Phil DeGuzman’s private student loans were sold to a new lender, he felt powerless.
“I found out about it via email,” says DeGuzman, who was in graduate school at DePaul University in Chicago at the time. “The process was smooth because I had no choice but to accept it.”
Now, he makes payments to two private lenders, which isn’t ideal, says DeGuzman. “I would prefer that everything transfer” to one company, he says.
DeGuzman’s experience isn’t uncommon. Both private and federal loan servicers may transfer a borrower’s debt to another company, sometimes leaving customers scratching their heads over what inspired the shift — and what it means for payments going forward.
But while the transfer process may feel like a pain, it doesn’t have to be costly for borrowers. Here’s what debtors can do to stay on top of their student loan payments before, after and during a shift in servicers.
1. Understand why: The changeover can happen for a range of reasons, experts say. A student who opts to enroll in Public Service Loan Forgiveness, for example, may find their loans transferred to FedLoan Servicing, which handles loans on that repayment plan.
One loan may change hands so that all the borrower’s debt is handled by one company. A transfer may also occur after a company sells its loan portfolio.
[Discover how to cope with a change in student loan servicers.]
2. Keep an eye on paperwork: Student loan borrowers “need to keep up with what’s being sent to them,” says Terry Finney, director of financial aid and scholarships at Arkansas State University.
When a federal loan is transferred, borrowers may receive an email or letter from their old servicer as well as a welcome letter after their information transfers to the new system, says the Department of Education‘s website.
During a recent servicer transition, Navient, the federal loan arm of Sallie Mae, contacted borrowers about four months ahead of the changeover, says Patricia Nash Christel, a spokeswoman for Navient. Early messages were co-branded by both the outgoing and incoming servicers to smooth the transition, she says.
If debtors aren’t sure which servicer — or servicers — are handling their loans, they can head to the National Student Loan Data System to take stock of their overall federal loan debt, says Marty Somero, director of financial aid at the University of Northern Colorado. For private debt, checking their credit report can help reveal what they’ve borrowed, says Somero.
3. Update payment methods: Inputting correct information into a new system right away is key to avoid issues resulting in unprocessed or late payments. “It’s a good idea to go ahead and set up a login with your new servicer,” says Finney. Missing payments can end in late fees and even start the clock ticking toward default.
During a servicing transfer, some borrowers have reported interruptions receiving billing statements and other important messages, according to a 2013 report from the Consumer Financial Protection Bureau.
Others were unaware of subtle policy differences between one servicer and another. For example, the old servicer may have allowed them to pay their loans through a credit card while the new one required direct transfers from a bank account.
Borrowers using automatic debit to repay their loans with a previous servicer should check whether their payment information transferred — it may need to be re-entered into the new servicer’s online system, says Finney.
4. Complain — if you must: If a new lender isn’t responsive, students can head to an official bureau, such as the CFPB, to lodge a formal complaint.
[Discover five steps to file a student loan complaint.]
Another resource for borrowers is the financial aid office of their alma mater, says Finney. The office may have access to a representative from the loan servicing company who’s more helpful or accessible than the call center employees manning the main phone lines, he says.
5. Consider refinancing: If the new servicer isn’t cutting it, borrowers can look into refinancing their debt, says Somero, of Northern Colorado. The process of refinancing involves paying off an existing debt by taking on a new loan, with new terms.
[Know the risks and rewards of private student loan refinancing.]
But think twice — or three times — before refinancing federal debt into a private loan since those borrowers lose federal benefits and protections. Choosing a new lender carefully is important or else “you’re going from the griddle to the frying pan,” says Somero.
Trying to fund your education? Get tips and more in the U.S. News Paying for College center.
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5 Steps to Take When Your Student Loan Servicer Changes originally appeared on usnews.com
