As a student loan borrower, staying on top of paying off your loans is crucial. But what if your student loan is sold to another lender, forcing you to deal with a new loan servicer?
If you receive a letter notifying you of this change, you might be confused or frustrated. If you find yourself in this situation, don’t panic. Here’s why your student loan was sold to another lender and what you can do about it.
Why student loan companies sell debt
As a student loan borrower, your main point of contact when it comes to managing your loans is your loan servicer. This is the company you send your payments to every month.
Sometimes, your lender is also your servicer. Often, however, your loan servicer isn’t the same as your lender. Your lender can sell your student loans to another company. It may be inconvenient for some borrowers, but in reality, it’s a business move for lenders.
“Selling loans allows lenders to continue to make new loans,” explained student loan expert Mark Kantrowitz, the Vice President of Strategy at college-comparison site Cappex. “Otherwise, they would be limited to making loans up to the capital they have available and then would have to stop making new loans. Providing the lender with the money to make new loans is often referred to as liquidity.”
But why the potential change in loan servicers?
“Some lenders sell their loan portfolios directly to investors through a process called securitization,” said Kantrowitz. “The original lender will either continue to service the securitized loans or will contract with a third party servicer.”
If your lender sells your student loan debt, they may work with another loan servicer who will manage your payments.
On top of making room for new student loans, your lender might sell your student loans based on where you are in the student loan life cycle. For example, some lenders specialize in funding loans but aren’t equipped to manage them once they’ve been disbursed.
Now that some repayment plans last 20 to 25 years (à la certain income-driven plans), the student loan life cycle is longer than ever. These extended repayment terms can benefit borrowers, but they can be a lot of work for smaller-scale student loan companies or lenders.
In short, selling student loans can be a way for lenders to offload some responsibilities. And also allow them to make some capital and produce more student loans.
How selling student loans works
Lenders sell student loans so they can fund more loans, but how does it actually work?
“When a lender sells a loan, it usually receives the principal balance of the loan, plus a premium,” explained Kantrowitz. “The premium represents a portion of the future profits that will be derived from the loan over the life of the loan.”
This money offers the capital that lenders need to produce additional student loans.
The process of selling student loans doesn’t affect what you owe or your repayment. It can, however, mean a change in your loan servicer and it may take up to 60 days for the transfer to take place.
What happens when your student loan debt is sold
If your student loans are sold, your lender is required to notify you about the change. You should receive two letters:
- One from your current lender notifying you that your student loans have been sold. This letter will include information about the new servicer.
- A second letter from your new lender about the purchase. This letter should include information on how to create an account and make payments.
Kantrowitz encourages borrowers to make sure they receive both letters and to review their information to ensure it’s up to date.
“Call the lender if you receive only one letter,” he said. “Review the letters carefully, as it will list your loans, the current loan balances, the interest rates, and the monthly payments. If there are any errors, notify the lender promptly.”
If your student loans are sold, your interest rates or repayment terms won’t change. But your payments aren’t automatically transferred if your student loans are sold, either.
You will need to create an account with the new servicer to make payments through them. If you signed up for autopay with your old loan servicer, you’ll need to re-enroll with your new loan servicer.
While lenders are required to notify you when your student loan debt is sold, not all borrowers are so lucky. In the past, borrowers have been frustrated by their student loans being sold or transferred without warning.
If you’re unaware that your student loans have been sold, it could mean delayed or missed payments.
“Sending payments to the old servicer can cause delays in the receipt of your loan payments (leading to extra interest) and may cause loan payments to be lost,” said Kantrowitz. If your payments get lost, you could incur late fees on top of that.
What if I don’t want my student loan sold to another lender?
While you may want not want your student loan sold to another lender, there’s nothing you can do to prevent it.
“Borrowers have no say in whether their loans are sold to another lender or whether the servicer can be changed,” said Kantrowitz. “This is disclosed in the loan promissory note signed by the borrower. If the borrower doesn’t like the new servicer, the only options are to refinance with another lender or pay off the debt in full.”
While you can’t control whether or not your debt is sold to other student loan companies, you can be proactive about your student loan repayment:
- Stay in touch with your loan servicer.
- Open all snail mail.
- Thoroughly read emails.
- Make sure your contact information and address are up to date.
Doing these things can help you avoid making the situation worse — and help you avoid any extra fees.
Was your student loan already sold to another servicer? Take these four steps to ensure the transition goes smoothly.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.50% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.49% effective March 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.50% – 7.27%1||Undergrad & Graduate|
|2.50% – 7.12%3||Undergrad & Graduate|
|2.81% – 8.79%4||Undergrad & Graduate|
|2.50% – 6.65%2||Undergrad & Graduate|
|2.55% – 7.12%5||Undergrad & Graduate|
|3.00% – 9.74%6||Undergrad & Graduate|