It might come out of the blue: a letter or email alerting you that the lender you originally signed with to take out a loan is no longer managing your account. Instead, a different company is taking over, and you’ll be working with the new guys now.
Why is your servicer or loan holder breaking up with you? Is it something you did wrong? What happens now?
“If you get a notice that your loan has been sold or your servicer is changing, don’t take it personally,” says Amy Loftsgordon, foreclosure, collections and debt management editor at Nolo, a publisher of do-it-yourself legal books and software, via email.
Having your loan change hands — whether it’s a mortgage, student loan or another type of consumer debt — is common, experts say. A company may opt to offload tens of thousands of loans in a bundle, based on a business decision, not your worth as a consumer.
But while it’s just business for the company, working with a new loan servicer can be disruptive to your personal financial life and loan repayment plans. Read on for steps you can take to make the transition easier.
Know the difference between a servicer and loan holder. Read any communications you receive carefully to decipher whether the company introducing itself to you is the loan servicer or loan holder.
Your servicer manages your loan and is responsible for collecting payments, responding to your phone calls and tracking your balance. This is the company with which you interface. If it changes, you’ll start making payments on a new website and directing questions to a fresh servicing company.
The loan holder is the company that owns your debt. It’s possible that you’ll never interact with this group at all. It simply holds your loan on its balance sheets. Sometimes, your loan servicer and loan holder are the same company. Oftentimes, they’re not.
A third category to note is a debt collector. If you’re getting messages from a collection agency, it can mean you’ve defaulted on your debt, and the responsibility for collecting owed payments has been transferred to a specialized group.
If you can’t tell which type of company sent you the letter, call it and ask, Loftsgordon says.
[See: What to Do If You’ve Fallen (Way) Behind on Your Credit Card Payments.]
Expect an alert. Depending on the type of loan, you may get a notice that your loan servicer or owner has changed. The regulations guiding how the notifications look vary depending on the industry you’re working with.
When it comes to mortgages, “federal laws require homeowners to be notified when there’s a transfer of loan ownership and when there’s been a transfer of servicing rights,” says Geoff Walsh, staff attorney at the National Consumer Law Center. If a mortgage lender sells the loan to a new owner, the notice has to come within 30 days of the transfer, with information on the new owner’s identity and contact information, Loftsgordon says. If the mortgage servicer changes, you should hear from the old mortgage servicer within 15 days of the transition and the new one within 15 days after.
Your student loan issuer also must notify you when a new servicer takes over the loan, which can happen for a range of reasons, including when a student loan shifts status, such as changing from being in good status to default. Communication is typically via mail and email, says Ashley Norwood, manager of community outreach at American Student Assistance, a Boston-based nonprofit. “It should be coming from your original servicer and loan holder first,” she says. Keep in mind that a huge portion of federal student loans are held, or owned, by the U.S. Department of Education, but private student loans may come from a range of marketplace lenders, which may also transfer ownership.
Make sure it’s not a scam. If the alert seems suspicious or the company is offering debt relief for a fee, make sure you’re dealing with a legit new loan company, not a financial scam.
One of the best ways to ensure that your loan truly has changed servicers is to phone your former loan servicer and ask if your account has transferred to the new company. Your former servicer should be able to confirm the transition. Federal student loan borrowers can log into their accounts on the National Student Loan Data System, or NSLDS, which will list the name of their servicer, says Adam S. Minsky, a Boston-based attorney specializing in student loan debt.
[See: 10 Ways to Protect Yourself From Online Fraud.]
Track your payments carefully through the transition. There’s not much you can do when your loan holder changes. But when your servicer changes, you should be extra vigilant throughout the transition, experts say. “If any of your payments somehow fall through the cracks during the transfer, you’ll need to be able to prove when and where you made them,” Loftsgordon says.
One pitfall to avoid is assuming that any automatic withdrawals will transfer over to your new servicer. “A lot of times, borrowers end up missing a payment because they think, ‘I don’t have to worry about it,'” Norwood says.
For student loan borrowers, Minsky recommends keeping your own records of on-time payments and downloading that data from your previous servicer before the transition. That way, if you’re counting down the payments through a student loan repayment plan such as Public Service Loan Forgiveness, which requires 120 on-time payments for loan forgiveness, you can independently verify that all have been tracked and counted correctly toward your total.
[See: How to Improve Your Credit Score.]
You’re probably stuck with the new company. You don’t have much choice when it comes to who owns your loan and who services it. Yes, you can choose to borrow from a specific company when you initially take on the loan. But once you sign on the dotted line, you typically forfeit your right to control to whom the lender sells the loan or servicing rights. When it comes to mortgages, for example, “homeowners don’t have control over two things really: who owns their loan — the loans themselves are frequently sold — and they don’t have control over who services the loan,” Walsh says.
One way for student loan borrowers to change their loan servicer is to consolidate federal loans. During the process, you can choose which servicer you’ll work with, experts say. But, of course, that servicer could change at any time down the road.
When you are having problems with a new servicing company, you can take steps to resolve the problem. If it’s a student loan, bring the complaint to a manager at the servicing company and get a direct number, so you’re not reexplaining your gripe each time you call. You may contact an ombudsman, a student loan advocate, with the servicing company or discuss federal student loans with the ombudsman at the U.S. Department of Education, Norwood says. Borrowers struggling with private student loans can register a formal complaint with the Consumer Financial Protection Bureau. People dealing with unscrupulous new mortgage servicers can also contact the CFPB. Filing a lawsuit is also an option in extreme cases, experts say, but that’s not a step to be taken lightly.
More from U.S. News
11 Expenses Destroying Your Budget
8 Big Budgeting Blunders — and How to Fix Them
10 Completely Careless Credit Card Mistakes You’re Making
Why Did Another Company Start Managing My Loan? originally appeared on usnews.com
