Student Loan Sold to Another Lender? Here’s What You Need To Know

You might be paying off your student loans for as long as 30 years. During that time, your student loan could be sold to another lender or transferred to a new loan servicer. This move can come as an unwelcome surprise.

This guide covers what happens when your student loan servicer changes and what to expect going forward.

Why was my student loan sold to another lender?

Student loans can be sold or transferred to a different lender or loan servicer for various reasons. However, it depends on which type of student loan you have.

“The federal government does not sell loans, but they may need to move them from one loan servicer to another,” says Pam Sittig, director of financial aid at Grinnell College.

“Private lenders may choose to sell educational loans. The reasons for selling private educational loans are likely similar to when mortgage loans are sold,” she adds.

Federal loan servicers have contracts with the U.S. Department of Education. Sometimes, those contracts don't get renewed. When that happens, that happens, your federal loans are transferred to a new loan servicer. In this case, the Department of Education continues to be your lender but outsources the loan servicing to a new company.

“Only private loan lenders sell loans,” says student loan lawyer Joshua Cohen. “Often, it's simply to monetize losses — that is, they sell defaulted loans to debt buyers as a way to recoup some lost value.”

So, when it comes to student loan transfers, one of the main distinctions is who owns and services the loans.

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What happens when your student loan is transferred?

Your current loan servicer will notify you before transferring your loans. Typically, they'll send a letter or email at least two weeks before the transition.

This notice will inform you that your student loan is being sold to another lender or transferred to a new servicer, and you'll get the new company's name and information. You should also get another notification from your new loan servicer.

When your student loan is sold to another lender or transferred, your loan terms remain the same. In other words, your interest rate, repayment term, outstanding balance, and monthly payments continue as usual.

What changes is who you make your payments to. If your private student loan is sold to another lender, check to see if the lender is also the loan servicer.

Since federal loans only get transferred, not sold, the Department of Education will remain your lender. But the agency works with a network of federal loan servicers to manage borrowers' student loan repayment.

When your student loan servicer changes, you simply make payments to a new entity. That means you'll need to update your records and ensure you have the new loan servicer's contact information.

You'll need to register with the new loan servicer and create an account online. From there, you can re-enroll in autopay and make sure everything is properly transferred and your loan information is correct.

Steps to take when your student loan is sold or transferred

If you've received a notice that your student loan is being sold to another lender or transferred to a new servicer, you'll need to do a few things.

Here's how to manage a student loan transfer:

1. Confirm the transfer: First, make sure the student loan transfer is legitimate. Make sure the note you receive from your current lender or loan servicer is on official letterhead or from an actual email address from the company. Then, contact your new loan servicer to confirm your loans are being transferred. Doing your due diligence can help you avoid potential student loan scams.
2. Create a new account: When your student loan is sold to another lender or is transferred, you must create an account with the new loan servicer. Go to the loan servicer's website and follow the instructions to create an online login. Typically, you'll create a username and password that gives you access to your account and student loan information. “When a new loan servicer appears, note the address for sending payment and be sure to create an online account to stay on top of any communications and online bills,” says Cohen.
3. Update your payment method: After creating an account with your new loan servicer, update your payment method so you can make payments. Most loan servicers allow you to pay using your debit card or your checking or savings accounts.
4. Review account information: Once the transfer is complete, review your account information for accuracy. Make sure your balance, interest rates, and repayment plan are the same. The transfer shouldn't interrupt your repayment status. So, if you were in deferment before the transfer, you should still be in deferment. If you were enrolled in an income-driven repayment plan, you should still be on an IDR plan. Of course, it's a good idea to double-check.
5. Re-enroll in autopay: If your student loan is sold to another lender or transferred, you likely need to re-enroll in autopay. You gave the previous company consent to withdraw funds from your account. Since it's a new loan servicer, you must consent again. Make sure to re-enroll in autopay and continue to make payments manually until it's in effect. When you sign up for autopay, you may qualify for an interest rate deduction of 0.25 percentage points.

Does a loan servicer transfer affect repayment plans?

If your student loan is sold to another lender or transferred to another loan servicer, it shouldn't affect your repayment plan. Verify that you're on the same repayment plan as before. If not, contact your new lender or loan servicer right away.

This is especially important for borrowers on income-driven repayment (IDR) plans. You might be working toward Public Service Loan Forgiveness (PSLF) or IDR forgiveness — in both cases, your monthly payment count matters and gets you closer to forgiveness.

If you're dealing with a new loan servicer, make sure you're still on an IDR plan. Contact your new loan servicer about when you'll need to recertify your income and family size for the plan. If you'd like to switch repayment plans, your loan servicer can assist you in the process.

Can you stop your student loan from being sold?

Getting a notice that your student loan has been sold to another lender or transferred to a new loan servicer can be an unwanted change. Unfortunately, you can't do anything about it.

When you sign your student loan's promissory note, you agree to the loan terms and conditions. The Master Promissory Note federal loan borrowers sign states that your loans may be transferred to another loan servicer.

If you want more agency to choose your lender and loan servicer, you can refinance your student loans. This allows you to compare different refinancing lenders and choose the one you want to work with.

Private student loan refinancing companies may be able to offer you a lower interest rate than you currently have, depending on your credit score and history. You can also change your loan terms.

While this can put you back in control, refinancing federal loans also makes you ineligible for important federal loan protections and benefits, since refinancing pays off your existing student loans with a private loan. Therefore, you won't qualify for student loan forgiveness, income-driven repayment, or other perks.

If you don't plan to take advantage of federal benefits and you have a solid credit score and income, refinancing may help you reduce interest charges and allow you to work with the lender of your choice.