What to Do If Your Student Loan Was Sold to Another Lender
Staying on top of paying off your student loans is crucial. But what if your student loan is sold to another lender, forcing you to deal with a new creditor?
If you receive a letter notifying you of this change, don’t panic — your loan terms and balance will remain the same, though you may end up with a new servicer when your student loan is transferred.
Here’s why your student loan was sold to another lender and what you should do next.
Why student loan companies sell debt
As a student loan borrower, your main point of contact when it comes to managing your loan is your loan servicer. This is the company you send your payments to every month. Sometimes, your lender is also your servicer, though this isn’t always the case.
Your lender can sell your student loans to another company — while this may be inconvenient for some borrowers, 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, publisher of PrivateStudentLoans.guru.
“When a lender sells a loan, it usually receives the principal balance of the loan, plus a premium. 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.
Whether you have a federal or private student loan, it’s possible that your loan servicer will change at some point during the life of your loan. This sometimes happens if your lender sells your debt — your new lender might work with a different servicer than your old one. If you find yourself in this position, rest assured that your loan term, balance and interest rate will stay the same.
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.
And while this is mainly about private loans, know that federal student loans are never sold, though you could still end up with a new servicer. It’s not unlikely that your current federal loan servicer might end its contract with the Department of Education and be replaced by another. After all, some federal income-driven repayment plans last 20 to 25 years — long terms that 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 allow them to make capital to produce more student loans.
What happens when student loans are sold
The process of selling student loans doesn’t affect what you owe, your interest rate or your repayment terms. It can, however, mean a change in your loan servicer, and it may take up to 60 days for that transfer to take place.
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.
Student loan expert Kantrowitz encourages borrowers to make sure they receive both letters and 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 loan is sold and your servicer changes, your payments aren’t automatically transferred to the new servicer. Instead, you’ll need to create an account with the new servicer and re-enroll in autopay (if applicable).
Sending your student loan payment to the wrong servicer could negatively impact your credit score and lead to late payment fees and extra interest.
Lenders might decide to sell off some of the loans they originated, a process known as “securitization,” according to Kantrowitz. After securitizing the loans, the original lender might continue to service the debt on behalf of the new owners, or it might contract this out to a third-party servicer.
What if I don’t want my student loan sold to another lender?
While you may not want your student loan sold to another lender, there is unfortunately 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 your debt is sold to another student loan company, 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.