If you transfer schools at least once during your college career, you’re not alone. Transferring schools is surprisingly common; an estimated 35% of college students transferred schools at least once between 2004 and 2009, according to a 2017 report from the Government Accountability Office.
There are many reasons to transfer to a different academic program. If you decide to take this step, it’s important to understand the impact transferring will have on your college loans.
This guide will help you understand everything you need to know about switching schools when you have student loan debt.
1. Transferring schools could impact your eligibility for college loans
When you apply for college, each school puts together a financial aid package for you to consider. If you switch schools, your new college will need to put together a package for you.
If you’re hoping to receive federal loans or grants from your new school but plan to transfer there in the middle of the year, you’ll need to update your Free Application for Federal Student Aid (FAFSA). If you’re transferring at the end of the year, you can simply include your new school’s information when you fill out your FAFSA for the upcoming academic year.
To update an existing FAFSA, log in to the Federal Student Aid site and select “Make FAFSA Corrections.” Add in your new school’s information, and then submit the update.
Your FAFSA is good for a year after it’s submitted. So, your eligibility for financial aid shouldn’t change if you want to transfer midyear and submit an updated FAFSA. However, any aid paid to your previous school counts toward your annual loan limits.
When you update or submit a new FAFSA, the cost of your new school and the availability of other aid, such as scholarships and grants, will likely differ from your old school. This means the amount of money you’re eligible to borrow could change once you’ve submitted a new or updated FAFSA.
Many private student loan lenders also consider your school’s cost of attendance to determine how much you can borrow. If your private lender sets a maximum loan amount based on your cost of attendance, changing schools could raise or lower your loan limits.
2. You might need to cancel your financial aid disbursement
Money from college loans is typically distributed to the school you’re attending in large payments at the start of each semester. If you’re changing schools midyear, you need to notify the financial aid office at your old school to cancel your financial aid disbursement.
If you have private student loans, you might also need to tell your private loan lender not to disburse funds to your old school. If you’d been approved for a private loan to cover a full academic year at your old school, the lender might decrease your loan amount.
You cannot simply transfer private or federal loan money from your old school to your new one. So, be sure to provide notice before loans are disbursed.
You’ll also want to take action to ensure you’ve properly withdrawn from your old school before withdrawal deadlines. That way, you don’t end up owing money for a semester you won’t be attending.
3. Applying for new college loans might be necessary
Revising your FAFSA or submitting a new one should make it easy to obtain funding for your continuing education. Your school will receive your FAFSA data, put together a financial aid package, and award an appropriate amount of federal aid.
However, if you need additional funding from a private lender, you might need to submit a new loan application with details about your new academic program. If approved, your loan will be disbursed directly to your new school. Speak with your lender to see what they require.
4. The two-distribution rule could affect your loans
Direct Loans must be disbursed in two payments. So if you’re transferring midyear, your loans will be disbursed in two separate payments over one semester.
If you’re counting on a refund when your loans are disbursed to help you afford textbooks or other costs, you might receive only part of your payment at the beginning of the semester. You might need to do some careful budgeting until the second disbursement is completed.
5. Your loans could enter repayment
You can defer payments on federal loans and on many private loans while you’re attending school. Your loans might also qualify for a grace period that lasts for up to six months after graduation. In fact, if you’re enrolled in an eligible academic program at least half time, your federal loans are typically placed into deferment automatically.
If you have a private loan, you might be able to defer payments until after graduation or make interest-only payments while in school.
When you leave your old school, however, your withdrawal from your academic program will be reported to your lender. Make sure your lenders are aware that you’re enrolled at a new school. If your lenders think you’ve left school for an extended period of time, your loans might enter repayment, sticking you with a hefty student loan bill.
While your new school should automatically report your enrollment, you’re responsible for following up. If you fail to do so, you could end up owing loan payments because your lenders think you’re no longer in school.
Stay on top of your college loans
Keep in close contact with the financial aid offices of your old and new schools. They can help you manage the specifics of your situation and walk you through the transfer process.
Even after transferring, you’re still responsible for repaying loans taken out to cover the costs of your old school. Track all of the different loans you’ve taken out so you can make a plan for repayment upon graduation. That way, nothing will fall through the cracks when it comes time to repay your college loans.
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