A few months ago, I logged onto the website for my student loan in order to check on my balance — when I found that I did not have one. Suddenly, the $12,000+ I owed had gone down to $0.
I’m suspicious by nature, so rather than celebrating that some secret patron had paid off the rest of my education, I started wondering how this obvious mistake could possibly mess up my financial plans. I put in a call to my federal loan-servicing center, and I was told that my loan had been transferred to MOHELA, a Missouri-based loan agency. The transfer went through a full two weeks before I was informed by mail that it would happen.
My experience with MOHELA thus far has not been exactly positive. But putting my personal concerns about my new loan administrator aside, I wondered how the U.S. Government could legally transfer my federal student loan. Here is what I found out:
How and Why Loans Are Transferred
The federal government only recently allowed loans through the William D. Ford Federal Direct Student Loan program and the Federal Family Education Loan program to be transferred to alternative loan servicers. According to Jill Rooney, Ph.D., the U.S. Department of Education (USDOE) announced in September, 2009 that it had “expanded its federal loan servicer team to provide additional servicing capacity for Title IV loans owned by the Department of Education.”
In English, that means that the USDOE was going to allow not-for-profit loan servicers to start taking over administration of federal loans. The reason behind this is to uphold a recent law that cuts out all banks and private lenders from the federal student loan industry. This law is part of a reform that is attempting to keep private business out of student loans, and thereby reduce costs, errors, and instances of fraud.
Who Can Take Over Your Loan?
Prior to this change, only six loan servicers would have handled the administration of your loan: Department of Education Student Loan Servicing Center (ACS), Direct Loan Servicing Center (ACS), FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, and Sallie Mae. MOHELA was the first not-for-profit loan servicer to be awarded existing loans, but there were a total of 15 new contracts awarded to alternative loan servicers. The contracts with these servicers have implementation dates between October 2011 and January 2013.
What Does This Mean For a Borrower?
Just as when a mortgage is sold, the transfer of a loan requires the new owner of the loan to honor the original terms. In theory, everything should go smoothly with these transfers, and you should be able to continue making your regular payments with your new loan administrator. However, no major transfer of the amount of information represented by this many loans will be completely seamless. Borrowers will need to stay on top of their own loan information to insure that their loan agreements are honored. Jill Rooney suggests these steps to protect yourself if your loan is transferred to MOHELA or any other third-party loan servicer:
• Keep a log of all contacts with and communications from [your servicer.] Specific dates are important.
• Find and hold onto the terms of your original federal student loan, so that you can track any changes.
• Maintain copies of cancelled checks, print out copies of screen shots from the [loan servicer] website that show payments that you have made, and copy bank statements that show direct payments.
• If you have any problems, call customer service and try to resolve them.
The Bottom Line
It is up to you to stay on top of your student loan, no matter who your loan administrator might be.
{ 15 comments… read them below or add one }
I was annoyed when my loan was transferred to MOHELA from DLS. First off, you’re right – they didn’t notify me until weeks after it happened, meaning I had made my regular monthly payment through my bank’s bill pay, but then at the end of the month when I was checking all of my loan balances, I saw what you did – a $0 balance. Very odd. Took a while to figure out where my loan had gone, and it took almost 2 months for my payment to meander on over. Also I was way ahead on my loan payments, meaning technically I didn’t have to make payments if I got into a bind, but when transferred I noticed THAT wasn’t transferred. Thankfully now they did something and I am still adding extra cash to my monthly payment so I technically still don’t owe a payment until August 2013, but it was just not a pleasant experience all around.
My loan just got transferred, causing my credit to take a hit (because the student loan account was my longest open account). Is there anything that can be done about this?
My student loan transferred to OSLA – Horrible. Long wait times – over 30 minutes on hold and every time I call I get different information. I sent three payment to US Department of Education but they were supposed to go to OSLA. After 3 months, only 1 payment is reflecting. Dealing with US Department of Education was always a much more pleasant experience.
I had a similar experience, except that the transfer was from ACS to Nelnet. Apparently, they’re not equipped to efficiently forward payments made to the ‘wrong’ address and I got a notification that I was 30 days past due. Kelly at Nelnet was quite helpful and was able to tell me: (1) Who my previous servicing company was (I only knew them as ‘US Department of Education’ and a PO Box) (2) that my payments would get transferred, but it would take 30-40 days! and (3) there would be no credit report impact until I was 60 days past due. I’m now on hold with ACS to ensure that they do in fact forward my payment. I had attempted to access their voice response system, but it no longer recognizes my SSN. It seems that the companies involved could have done a lot better job on the transition and saved their customers a lot of grief, wasted time and potential credit impact.
Once your original contract has been sold it is terminated. You never signed anything with these people calling asking for money. You never set up an account with them. Do some research on this.
101, instead of making a statement such as the one you posted here, provide some links or substantiating information. If what you say is true, some people who can’t afford to make even the smallest of payments, may benefit from your insight. It is rare that any of the agencies seem to be willing to listen, and even though little hope for relief exists (and none of the promised great jobs or increases in salary are actually available), maybe your information could help straighten out some bad situations. Living on $22,000 a year doesn’t leave room for anything else besides food, shelter, and water.
101 – you’re absolutely wrong. Read the Terms and Conditions on your promissory note. You’ll find the lender has every right to sell or move your loan around. Do not put others at risk by providing bad information.
Right now I’m on an “Unemployment Forbearance”
Now that the federal government sold my loan to Sallie Mae, will I be able to keeep my forbearance? (I’m still unemployed)
And also, how will this affect deferrments if I go back to school?
Thanks!
One of my loans was sold to Sallie Mae awhile ago and since you’re currently in Forbearance now, it SHOULD carry over to Sallie Mae. The loan servicer that sold your loan to Sallie Mae should have sent you something stating that your status would remain the same with Sallie Mae. Also, as long as you remember to keep up with applying for your forbearance with Sallie Mae and your circumstances are still the same, you should be able to remain in forbearance.
Everything should be a smooth transition, however Sallie Mae can screw up and getting them to correct their errors can be difficult and frustrating (Most of their customer service reps are in India or other countries and communication, at least from my experience, can become a problem) . I would make doubly sure with Sallie Mae that everything transitioned well before assuming that everything carried over without a hitch.
And about the deferments, the same rules apply. Sallie Mae acknowledges in-school deferments.
I just found out my loan was transferred to Sallie Mae and is showing a payment date due in 2014. I wrote to them and they said its due to a pay-ahead status. WHAT DOES THIS MEAN??? They have yet to respnd to my 3rd email I have sent. I tried to call but was put on hold for 22 mins and then had to hang up. This should be illegal.
It’s very legal for student loans to be sold / transferred. I have no issues with this practice.
What I take exception to, is the lack of communication between the entities involved with the transfer. I had a loan that was transferred. I tried an electronic transfer. It was denied, no response. I then sent four separate checks, it took over 10 weeks to have the unprocessed checks returned to me. In the mean time, I’d written three certified letters to ACS. I received a response two weeks later, stating to contact your new provider.
I’ve now sent certified letters to the President / CEO & to the Ombudsman of the new institution, managing my loans. I’ve yet to receive any account information from my new institution. I’ve no idea when the loan was transferred, several months from what I can tell. The ACS website information has been terminated.
Here’s my experience with a private loan corporation: Before Direct Loans consolidated my loans and bought them from Sallie Mae, I went through hell with them. It was the most demoralizing horrible experience Ive been through. It started when I became ill and lost my job and wound up in the hospital. After several months, I was not well enough to go back to teaching so I applied at a book store making 9$ hrly . Sallie Mae called me and everyone I know. I kept telling them that I was in forbearance which Sallie Mae conceded as fact. However, Sallie Mae’s office had a collection agency and loan servicing and the collection agency refused to speak to the Sallie Mae loan servicer to validate that i was in forbearance. Instead, they called my new place of employment every 15 minutes round the clock. They literally crippled our business. I wound up losing my job. They would call me and tell me that I should have died in the hospital because it was the only way I would get away with not paying back this loan. I told them I could pay less than the 800$ monthly they were demanding…I barely made 800$ monthly and just didnt have the money to give. They attacked me and my family for nearly a year until I spoke with the ombudsman and I was able to consolidate my loans with direct loans. Just recently, they fired all untenured teachers where I was employed and once again Im making crap money. So now what? Am I going to have to deal with being insulted and attacked? Im so sorry I went to school. Both my kids recently told me they do not want to go to college because they are so afraid of what they watched me go through. I thought Obama was going to help us to deal with the heavy burden of all these debts and the inability to make enough money to pay them off in our lifetime. I feel like this loan is a noose around my neck just threatening to kill me every time something goes wrong. I cant sleep I cant eat Im in a constant state of anxiety just worrying about how Im ever going to be able to pay this growing monster in its entirety.
Just noticed my loan was transferred as well. Absolutely no information on it. Happened today—the day I threw in a $5k payment, which I bet will now not show, but which these crooks happily stole from me.
I was okay with directloans and I paid in $60k in the past 11 months. I was hoping to finish these loans off within a year of living like a hermit. I am about 3 years ahead on payments because of how much I’ve thrown in.
Absolutely absurd that they can and do this. Your original promissory note probably doesn’t even indicate it can be sold. What they’re doing is packaging these loans into securities, essentially the exact same thing they did with mortgages. It’s extremely lucrative for these lenders and other companies, and of course the politicians that create the agencies to buy these securities get kick backs, so they just push it through.
I’m wondering if I should even bother paying now.
Derp — they’re direct loans, if you don’t pay they’ll take your taxes and garbage your wages for the rest of your life. They can even garnish SSI income upon retirement because they are federal funds.
For everyone else. Mr. Obama’s programs have destroyed student lending. The DoE can’t handle the burden, they ‘services’ are angry they can’t lend anymore, trying to make any money possible, and are taking all of this out on consumers.
This law was placed on the last page of the Health Care Reform bill and its biggest selling point was income contingent and income based repayment plans. Essentially your payment is tied to your income for 25 years. If you still have aid after 25 years of on time payment they will forgive balance. The kicker, any forgiven amount needs to be filed as additional income on ones taxes.
This is a ridiculous policy and they should have just done a better job policing subsidized lenders to prevent against fraud. But. Our president hates private business and profit and wants a hand in every aspect of you life, including your finances. I really appreciate you all voting him in. Lol. Good luck all. I have about 30k in Direct Loans and I’d kill to be able to get with a private firm but that’s now impossible.