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Chiamaka Oscar
- November 14, 2024
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If your student loan account is closed due to transfer, you may be unsure how it affects your loan, credit, and repayment. While transfers are common, understanding the process will help you manage it confidently.
This guide explains what happens when your student loan account is closed due to transfer, why transfers occur, and how to manage them. Understanding the transfer process will help keep your finances on track and your credit in good standing.
Table of Contents:
- What Does an Account Closed Due to Transfer Mean for Student Loans?
- Why Did My Student Loan Get Transferred?
- Do Closed Student Loan Accounts Affect Credit Scores?
- Transferred Account vs. Closed Account: Key Differences
- Federal Student Loan Servicing Changes
- What Happens When Your Student Loans Get Transferred?
- How to Navigate the Transfer Process
- FAQs
- Conclusion
What Does an Account Closed Due to Transfer Mean for Student Loans?
When your student loan account is closed due to a transfer, it means that the servicer who was managing your loan has changed, and your account is no longer active with the previous company. This can happen for several reasons:
- Servicer Change: The U.S. Department of Education or your loan provider may reassign your loan to another servicer.
- Default or Delinquency: If your loan goes into default, it may be transferred to a collections agency.
- Loan Forgiveness Programs: If you are enrolled in programs like Public Service Loan Forgiveness (PSLF), your loan could be transferred to a special servicer.
- Loan Consolidation: Consolidating your loans could close your old account and assign a new servicer to manage your consolidated loan.
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Although the account closes, it doesn’t mean your loan balance disappears. Instead, the new servicer will continue to manage your loan.
The credit bureaus (Experian, Equifax, TransUnion) will update, potentially impacting your credit score, especially if your loan was key.
Why Did My Student Loan Get Transferred?
There are a few key reasons your student loan account might have been transferred:
- Servicer Contract Termination: The U.S. Department of Education may end its contract with the current servicer, resulting in a transfer to another company. For example, FedLoan Servicing and Navient ended their contracts with the Department of Education in recent years.
- Loan Consolidation: If you chose to consolidate your loans into a Direct Consolidation Loan, your original servicer may close your account and transfer it to a new servicer.
- Public Service Loan Forgiveness (PSLF): Borrowers who qualify for PSLF often have their loans transferred to specialized servicers like MOHELA, which manages PSLF accounts.
- Default: If you default on your loan, it may be transferred to a collections agency or another servicer that specializes in defaulted loans.
- Lender Acquisition: Sometimes, servicers are bought out or merged with other companies, which means your loan might be transferred as part of the deal.
Do Closed Student Loan Accounts Affect Credit Scores?
A student loan account being closed due to a transfer can have a minor effect on your credit score. When a loan is transferred, the old servicer reports the account as “transferred,” and the new servicer updates it as active. If you have made consistent, on-time payments, the impact should be minimal.
However, if your student loan account was your only installment loan, the closure could cause a temporary dip in your credit score. This is because your credit report might reflect a reduction in your total number of active accounts. Fortunately, if your account was in good standing, it will stay on your credit report for up to 10 years, which could help your score in the long term.
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Transferred Account vs. Closed Account: Key Differences
Understanding the difference between a transferred account and a closed account is crucial:
- Transferred Account: This means your loan has been moved to a new servicer, but it remains an active account. You are still responsible for making payments, and your loan continues to accrue interest.
- Closed Account: A “closed” status applies to revolving accounts like credit cards. If your student loan account is marked as “closed,” it typically means the loan has been paid off in full or written off.
While the account may be “closed” in your previous servicer’s records, the loan is still active under the new servicer, and you should continue making payments as usual.
Federal Student Loan Servicing Changes
Recently, there has been a major shift in how federal student loans are serviced. The U.S. Department of Education has made changes to improve borrower experiences, leading to an overhaul of the servicer landscape. Some notable changes include:
- Granite State Management & Resources: Loans previously serviced by Granite State have been transferred to Edfinancial Services.
- Navient: Navient transferred all federal student loans to Advantage.
- FedLoan Servicing: All loans managed by FedLoan have been moved to MOHELA, Aidvantage, Edfinancial Services, or Nelnet.
These changes are part of an ongoing effort to improve loan servicing for over 10 million federal student loan borrowers.
What Happens When Your Student Loans Get Transferred?
When your student loan account is transferred, you’ll be notified by both the old servicer and the new servicer. Expect a few key actions:
- Notification: Both servicers will send you a notice explaining the transfer. The notice will include the date the transfer will occur, the new servicer’s contact information, and where to send your payments.
- Terms Remain the Same: Your loan’s interest rate, balance, and repayment terms won’t change due to the transfer. You will continue to be responsible for repaying the loan, but now through the new servicer.
- New Payment Instructions: You’ll receive new instructions on how to make payments, including the new servicer’s website, payment portal, and contact details.
- Credit Report Update: The old servicer will update your credit report to show the loan as “transferred,” while the new servicer will report it as an active account.
How to Navigate the Transfer Process
To ensure a smooth transition when your student loan account is transferred, take the following steps:
- Re-enroll in Autopay: If you were using autopay with your old servicer, you’ll need to set it up again with the new servicer. Failure to do so could lead to missed payments and potential late fees.
- Confirm Repayment Plans: If you were enrolled in a specific repayment plan or loan forgiveness program, make sure that the new servicer has the correct details and that your plan is still in effect.
- Track Your Loan Details: Before and after the transfer, keep copies of your loan balance, payment amounts, and any communication from both servicers. This will help prevent confusion during the process.
- Monitor Your Credit: Keep an eye on your credit reports to make sure the transfer is accurately reflected and that there are no mistakes or discrepancies.
- Review Payment Schedule: When the transfer occurs, check to see if your new servicer’s payment schedule or terms differ from your previous one. This ensures there are no surprises in your repayment process.
FAQs
What does it mean when a student loan is closed due to transfer?
It means that your loan has been reassigned to a new servicer.
Your account is closed with the old servicer, but the loan remains active and is now handled by the new servicer.
Can closed student loans be removed from my credit report?
Closed student loans can stay on your credit report for up to 10 years if they were paid on time.
If you find errors on your credit report, you can dispute them with the bureaus to improve your score.
How does a transfer affect my loan terms?
Your loan balance, interest rate, and repayment terms stay the same. The transfer only changes the company that handles your loan management.
Conclusion
A loan transfer is routine, but staying proactive ensures smooth repayment by understanding the transfer and taking necessary steps. Keep track of your loan details, re-enroll in autopay if needed, and monitor your credit to ensure a smooth transition. With the right approach, you can navigate the transfer and stay on top of your student loan repayment.
