What To Do When Student Loan Account Is Closed Due To Transfer

What To Do When Student Loan Account Is Closed Due To Transfer
Source: https://www.tateesq.com/learn/defaulted-student-loans-not-on-credit-report

What Happens When Your Student Loans Get Transferred? Is your account closed due to a transfer? All these can be significant events in financial management, particularly concerning loans or other financial obligations.

Whether it involves student loans, credit cards, or other accounts, the closure due to transfer requires attention and understanding to navigate the process smoothly.

This article will explore the implications of an account closure resulting from a transfer, including the reasons behind such transfers, the potential impact on credit scores, and the necessary steps to manage the transition effectively.

Understanding the intricacies of account closure due to transfer will empower individuals to navigate the associated challenges and maintain financial stability proactively.

What Does An Account Closed Due To Transfer Mean For Student Loans?

The following should be noted regarding account closure applies to both federal and private student loans under various circumstances:

  1. If a borrower falls behind on their monthly payments and defaults.
  2. When borrowers apply for the Public Service Loan Forgiveness Program, they are transferred to FedLoan Servicing for processing.
  3. If a company terminates its contract with the loan holder.

After the closure of your account, the three major credit bureaus are notified, which may result in a temporary drop in your credit score, even if you have been consistently making timely payments. Well, you know there are consequences of not paying back your student loans.

Back to previous discussion, this score decrease can occur particularly if the student loan was your sole installment account.

The closed account will remain on your credit history for at least seven years. However, if the account was closed with a positive payment history, it will stay on your record for ten years.

Removing the closed account from your credit history is possible, provided certain conditions are met.

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Why Did My Student Loan Get Transferred?

There are a few reasons why your student loan debt was transferred:

  • The original creditor sold the loan to another company.
  • You applied for the PSLF Program.
  • You defaulted on your student loans, and they were sent to a collection agency.
  • You consolidated the loans into a Direct Consolidation Loan.
  • The U.S. Department of Education may transfer federal loans from one member of its servicing team to another.
  • Your federal loan servicer’s contract may end with the U.S. Department of Education, resulting in a transfer.
  • Your loans may be transferred if you sign up for a loan forgiveness program such as Public Service Loan Forgiveness (PSLF) or a TEACH Grant.

If you have federal student loans, there is a possibility that your loan servicer may change due to the expiration of a contract between the U.S. Department of Education and your current servicer.

During the pandemic, both FedLoan Servicing and Navient announced that they would not renew their contracts. This led the department to transfer millions of student loan borrowers to new servicers.

Historically, transitioning borrowers to new servicers has been a chaotic process prone to errors. However, the current extension of the student loan pause, which ends in May, has allowed the department to minimize mistakes.

When your account is in good standing, moving to a new servicer will not impact your interest rate or loan balance. You will still retain access to the same repayment plans, options for payment pause through deferment and forbearance, and student loan forgiveness programs. If you have experienced a change in your student loan servicer, here are the steps you should take.

See also: Is There A Statute Of Limitations On Student Loans?

Do Closed Student Loan Accounts Affect Credit Scores?

The closure of student loan accounts can result in a slight negative impact on your credit score. The loan servicer responsible for your loans will inform Equifax, Experian, and TransUnion to update your account status.

If you have been consistently making timely payments and have other instalment accounts, such as a mortgage or a car loan, the decrease in your credit score should be minimal.

Difference Between A “Transferred” Account And “Closed” Account Status

When a new servicer takes over a student loan account, they will change the status of the old account to “transferred,” signifying that it is now inactive.

However, if you decide to consolidate your loans, each loan’s status will be updated to “paid.” In this context, a “paid” status represents a definitive and conclusive state.

“Closed” describes revolving accounts like credit cards no longer available for charges.

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Federal Student Loan Servicing Changes

By the close of 2021, the Department of Education implemented new standards for student loan servicing companies to enhance the level of service provided to borrowers. This initiative is part of a broader endeavor by the Education Department to enhance resources and communication regarding the repayment of federal student loans.

As a result of this process, there has been a significant turnover among student loan servicers contracted by the federal government. Notable transitions include:

  1. Granite State Management & Resources: All federal loans previously serviced by Granite State have been transferred to Edfinancial Services as of the end of 2021.
  2. Navient: By the end of 2021, all federal student loans previously serviced by Navient will have been transferred to Advantage.
  3. FedLoan (Pennsylvania Higher Education Assistance Agency): The Department of Education transfers all federal loans serviced by FedLoan to MOHELA, Aidvantage, Edfinancial Services, and Nelnet. Borrowers pursuing Public Service Loan Forgiveness will be transferred to MOHELA.

Additional transitions in progress include:

  • Oklahoma Student Loan Authority (OSLA) loans are being transferred to Aidvantage.
  • Great Lakes Educational Loan Services, Inc. is transitioning borrowers to Nelnet.
  • Edfinancial is not transferring loans to a new servicer but is changing its servicing platform.

Collectively, these changes are expected to impact over 10 million borrowers, resulting in the transfer of their loans to different servicing entities.

See also: What Happens to Your Student Loans When You Die?

What Happens When Your Student Loans Get Transferred?

When there is a change in your loan servicer due to a buyout or transfer of loans, you will be notified by your current student loan servicer. You will also receive a welcome letter from the new servicer.

The promissory note you signed for each student loan mandates this notification process, which obligates both the old and new servicers to inform you of the change. Furthermore, if the Department of Education transfers your federal student loans, you may receive a notice directly from them.

While the terms of your loan will remain the same when the servicer changes, the transition can sometimes result in a confusing reorganization of funds, catching borrowers off guard.

You will notice a different servicer listed on your credit reports and need to acquaint yourself with the customer support provided by the new servicer.

It’s also possible that the new servicer will have a different website or payment plan options. Any significant changes should be communicated to you through the welcome letter from the new servicer.

See also: Pros And Cons Of Paying Off Student Loans Early in 2024

What To Know About Federal vs. Private Student Loan Servicers

Federal and private student loan servicers can be transferred, and both must follow specific guidelines to notify you about the changes.

Change in a federal student loan servicer.

There are several reasons why your federal student loan servicer may change. One possibility is that the U.S. Department of Education terminates its contract with your current servicer, as seen with Granite State, Navient, and FedLoan.

Another reason for a servicer change is if you enroll in the Public Service Loan Forgiveness (PSLF) program. The Department of Education has a single servicer responsible for managing accounts enrolled in the PSLF program.

Hence, enrolling in programs such as PSLF or similar ones may result in assigning a new student loan servicer to you.

Additionally, if you opt for a Direct Consolidation Loan, you can choose your preferred servicer during that process.

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Change in private student loan servicer

Similarly, there can be instances where you encounter a change in your private student loan servicer. Such changes frequently occur when a loan servicer is acquired or a private student loan company ceases operations.

For example, in 2021, Wells Fargo withdrew from the student loan industry, transferring all existing loans to Firstmark Services.

What Should I Be Aware Of During The Transfer Process?

Student loan expert Mark Kantrowitz says consumers have no “rights” regarding the acquisition of their loan servicers. He offers the following guidance to ensure a smooth transition.

1. Autopay might not transfer to the new servicer.

Following the transition, it is highly probable that you will need to reenroll in the automatic monthly payment service if your payments were previously deducted from your bank account.

This step is essential because most servicers do not inherit your previous authorization and require a new one.

Failing to re-enroll could lead to a situation where you go for several months without making payments on your loans. This potentially results in loan default. Additionally, automatic payments often come with the benefit of interest rate discounts.

If you do not reinstate autopay, there is a possibility that your interest rate could increase. Therefore, it is crucial to re-enroll in the automatic payment service to ensure timely payments and potentially retain any associated interest rate benefits.

2. Some features might disappear

Suppose you have consolidated your loans with a different company. In that case, you may lose certain attractive features available previously, such as automatic biweekly payments instead of monthly payments.

If you wish to continue a similar payment arrangement with your new servicer, it is important to communicate your preferences regarding allocating extra payments.

Not all servicers automatically apply the additional payment towards interest.

Hence, it is recommended to communicate your intentions to ensure that the extra payment is directed according to your preferences.

3. Just because your account says ‘$0’ doesn’t mean your loans have magically disappeared

While it might appear fortunate, the likelihood of an entire loan balance being lost during a transition is highly improbable. It is not uncommon for certain student loan borrowers to observe a balance of $0 and expected payments of $0 in their accounts merely a week before the payment due date.

However, it is important to emphasize that despite these indications, it remains crucial to make regular payments to prevent the loan from going into default. Even if the account balance shows zero, it is imperative to continue fulfilling the scheduled payment obligations to ensure the loan remains in good standing.

4. Be proactive about any repayment or forgiveness plans you were previously on.

Certain information can be lost or misplaced during the data transfer process. This can pose a significant challenge, especially for individuals enrolled in loan forgiveness programs like income-driven repayment, where each monthly payment is vital in eliminating their loans.

As a result, it is highly recommended that once the transfer is complete, you proactively contact the new servicer and confirm the details of your repayment plan. This important step will help safeguard the integrity of your loan repayment strategy and ensure that your payments are accurately credited.

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5. Make copies of your account balance, monthly payment, and schedule

Kantrowitz emphasizes the significance of maintaining accurate records of your loan information. He suggests creating hard copies of your loan balances and monthly payment amounts before and after the transition to mitigate the risk of any confusion leading to expensive interest payments.

By diligently tracking the amount you owe and the scheduled payments, you can proactively prevent potential errors or oversights from negatively impacting your loan repayment.

Kantrowitz underscores the importance of remaining vigilant and actively staying informed about your loan status. This is because any mishandling of paperwork during the transition could have repercussions in the future.

6. Next steps

Kantrowitz highlights the importance of maintaining precise records of loan details. This is crucial to avoid any confusion that could result in costly interest payments. He advises creating physical copies of your loan balances and monthly payment amounts before and after the transition.

By carefully monitoring the amount you owe and staying on top of your scheduled payments, you can take proactive steps to prevent any potential errors or oversights from adversely affecting your loan repayment.

Kantrowitz emphasizes the need to remain attentive and well-informed about your loan status. Any mishandling of paperwork during the transition can have long-term consequences, so it’s essential to stay vigilant and actively manage your loan information.

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What does it mean when a student loan is closed due to transfer?

f your credit report shows that a student loan account was closed due to a transfer, it means that your loan has been sold or transferred to another student loan servicer. This typically happens with federal and private student loans when A borrower falls behind on monthly payments and defaults.

What happens when your student loans are transferred?

The “transfer” to another servicer means that a new servicer will provide the support you need to repay your loans fully. Here’s what you should expect if your loan is transferred to a new servicer: You will receive an email or a letter from your assigned servicer to inform you about the transfer.

Can closed student loans be removed?

However, if you find some inaccurate and negative information related to your student loan, you can dispute it. It will improve your credit rating. It’s also possible to remove a closed loan account in good standing if it wasn’t already removed automatically.

What is the loan status closed?

A closed account means that the loan has been paid in full and that you have done well in repaying the loan, whereas “settled” means that you were incapable of repaying the loan in time. Thus, you can be a risky borrower in the future as well, and it will lower your credit score.


When a transfer results in the closure of an account, it is crucial to understand the implications and take appropriate action. The transfer process may cause temporary disruptions and necessitate adjustments, making it essential to remain informed and proactive.

It is crucial to maintain accurate loan details records, track payment amounts, and ensure a smooth transition to the new servicer. By staying vigilant and actively managing the process, borrowers can minimize the potential negative effects and maintain control over their loan repayment.

Remember, a closed account due to a transfer is not the end but rather a new chapter that requires attention and engagement to ensure a seamless continuation of your financial journey.



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