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.