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.
Tagged as: Debt, Education, Money Management, Student Loans
You May Also Like:
- Should You Pay Student Loans With a Credit Card?
- How Do Extra Payments Get Applied to My Loan? -…
- Why You Should Never Take Out a Private Student Loan
- The Student Loan Secret that Could Save You…
- Lingering Myths About Student Loan Consolidation
Money Saving Tip: An incredibly effective way to save more is to reduce your monthly Internet and TV costs.
Subscribe (and Get a Mini-Course Too!)
Subscribe to our newsletter to grab free amazing content and have it delivered to you. A 7-part mini course to help you spend less and be happy will be sent to you when you subscribe, and you will also get an ever-expanding How to Save Money on Everything ebook. Alternatively, stay engaged in our discussions via our twitter and facebook pages.
(Don't worry about spam, because we hate it as much as you do!)
FAQs
Why do loans get switched or transferred to a different servicer? Sometimes, we need to transfer loans from one servicer to another—for example, when a servicer's contract with us ends. Even if we transfer your loans to a new servicer, we (the U.S. Department of Education) still own your loans.
Why did my loan get transferred? ›
Mortgages are often sold to other companies or investors to free up funds for the lender to offer more loans. The trading of mortgage-backed securities in the secondary mortgage market allows for a continuous flow of funds in the housing and financing markets.
What does it mean when your student loan is transferred to Mohela? ›
ED will continue to own your loans; however, MOHELA will manage your loans and assist you on ED's behalf as your federal student loan servicer. This change in servicer will not impact the existing terms, conditions, interest rate or available repayment plans of your federal student loans.
Why was my student loan removed? ›
Why did my student loans disappear from my credit report? Your student loan disappeared from your credit report because your loan servicer made a mistake, or you fell into default more than 7 years ago. Remember, even if your loans no longer appear on your credit report, you're still legally obligated to repay them.
Why is my student loan being transferred to Aidvantage? ›
Navient, one of the nation's largest student loan servicers this year, agreed to cancel $1.7 billion of debt to resolve allegations of unfair, deceptive practices and predatory loans. "So Navient decided to get out of the business and transfer their federal loans over to Aidvantage," he said.
Can they transfer my student loans? ›
Understanding Loan Transfers
If we transfer your federal student loans from one servicer to another servicer, your loans will still be owned by ED. The “transfer” to another servicer simply means that a new servicer will provide the support you need to fully repay your loans.
Why does my student loan say paid in full in 2024? ›
The Education Department plans to wrap up the account adjustments in September 2024, bringing millions of borrowers closer to student loan forgiveness or wiping their balances away entirely. IDR plans offer reduced payments over 20 or 25 years, depending on loan type, then forgive the remaining balance.
Does my Nelnet loan qualify for forgiveness? ›
You may be eligible for forgiveness of the remaining balance of your Direct Loans after making 120 qualifying payments on those loans while employed full time by a qualifying public service employer(s).
Why did my loan get transferred to Mr. Cooper? ›
Your account was transferred because your previous servicer sold your loan to us, your new servicer. It is very common for mortgage loans to be sold between servicers. Hundreds of thousands of loans change hands in this way every year.
Are MOHELA loans being forgiven? ›
If you work in certain public service jobs and have made 120 payments on your Direct Loans, you may be eligible to have your loans forgiven. If some or all of your payments were not made on a qualifying repayment plan for PSLF, you may be able to receive loan forgiveness under a temporary opportunity.
What types of student loans does MOHELA service? MOHELA services federal student loans, including all loans being paid off with the Public Service Loan Forgiveness (PSLF) program. MOHELA is also the loan servicer for some private student loan companies, like SoFi and Laurel Road.
Why does MOHELA say my loan is in forbearance? ›
MOHELA administrative forbearance
Others received bills with incorrect payment amounts. As a result, the Education Department instructed MOHELA to put affected borrowers into an administrative forbearance until the issue was resolved.
How do I know if my student loan has been forgiven? ›
Your student loan servicer(s) will notify you directly after your forgiveness is processed. Make sure to keep your contact information up to date on StudentAid.gov and with your servicer(s). If you haven't yet qualified for forgiveness, you'll be able to see your exact payment counts in the future.
Do student loans fall off after 7 years? ›
If the loan is paid in full, the default will remain on your credit report for seven years following the final payment date, but your report will reflect a zero balance. If you rehabilitate your loan, the default will be removed from your credit report.
Why was my student loan discharged? ›
Your loan can be discharged only under specific circ*mstances, such as a school's closure, false certification of your eligibility to receive a loan, or failure to pay a required loan refund; certain types of misconduct committed by the school; or because of total and permanent disability, bankruptcy, identity theft, ...
Why does my student loan payment keep changing? ›
Under all of the income-driven repayment (IDR) plans, your required monthly payment amount may increase or decrease if your income or family size changes from one year to the next or if you switch repayment plan.
What's going on with MOHELA? ›
MOHELA has announced that it will be transitioning to a new loan servicing platform in order to better serve borrowers with federal student loans.
Where did my FedLoan get transferred to? ›
Key takeaways. FedLoan Servicing stopped handling federal student loan accounts on December 14, 2021. After the decision, FedLoan accounts were transferred to MOHELA, Edfinancial, Aidvantage and Nelnet.
Who bought my federal student loans? ›
The federal government or a commercial entity owns your student loans. Private companies own all private loans. The U.S. Department of Education holds most federal loans. Both the Department of Education and private institutions partner with third parties called student loan servicers.
How and Why Loans Are Transferred