5 Ways Transferring Schools Could Affect Your College Loans

 April 30, 2021
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When you have a student loan or even a federal parent PLUS loan and transfer to another school, the loan won’t follow you to the next campus. You, as the primary borrower, would need to cancel the loan before it’s disbursed and reapply for financial aid at your next school.

There are many reasons to transfer to a different academic program or school during your college career. But if you decide to take this step, it’s important to understand all the consequences of transferring colleges relating to your financial aid, and particularly your college loans.

This guide will help you understand what you need to know about switching schools when you have student loan debt. Specifically, here are five possibilities that you need to be aware of:

1. Transferring colleges could impact financial aid and eligibility for college loans
2. You might need to cancel your financial aid disbursement
3. Applying for new college loans might be necessary
4. The two-distribution rule could affect your loans
5. Your loans could enter repayment
● Plus: How to stay on top of your college loans

1. Transferring colleges could impact your financial aid and 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 plan to transfer there in the middle of the year: To receive federal loans or grants from your new school, update your Free Application for Federal Student Aid (FAFSA). If you’re transferring at the end of the year: 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 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. As a result, 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 lenders also consider your school’s cost of attendance to determine how much you can borrow in student loans. 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 can’t simply transfer private or federal loan money from your old school to your new one. 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.

What about parent PLUS loans when transferring to another school?

If you, as a parent, borrowed a parent loan, you would follow the same protocol as your transferring student.

If you borrowed a federal parent PLUS Loan Contact your child’s original school to cancel or return the disbursement, and ensure child has formally withdrawn from the institution
If you borrowed a private parent loan Contact the lender to cancel the disbursement, or ask to reapply for funding by adding a new school to your application

For additional borrowing: If you plan to borrow a new parent PLUS loan after your child transfers to another school, keep in mind that your maximum borrowing amount could be lower. That would be the case if your child is transferring to a lower-cost school. Compare all your parent loan options before choosing the right loan for your family.

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 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 college 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.

How to 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 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.

Rebecca Safier and Andrew Pentis contributed to this report.

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