In this article:
When you apply for federal student loans, the U.S. Department of Education will assign a company to service your loans. However, if you're unsatisfied with your experience, there are a few ways to switch to a different servicer. Here's what you need to know.
Why You May Want to Change Your Student Loan Servicer
Many borrowers may never experience any problems with their student loan servicer. However, there are some legitimate reasons why you might want a change, including:
- Poor customer service
- Insufficient information about repayment options
- Mishandling of loan payments
- Delays in processing your income-driven repayment application
- Inaccurate information on your billing statement
That said, you don't necessarily need to have a bad experience to want to switch. You may also consider moving to a different servicer if yours has been the subject of lawsuits or other regulatory issues that may impact you at some point in the future.
How to Change Your Student Loan Servicer
The Department of Education doesn't allow borrowers to change student loan servicers without making other changes to their loans. With that in mind, here are three options you may have.
1. Consolidate Your Loans
The federal direct loan consolidation program involves replacing one or more existing loans with a new one. During the application process, you'll have the opportunity to choose which servicer you want for your new loan.
The process can also give you a chance to extend your repayment term and reduce your monthly payment. If you don't already have direct loans, consolidating them may also give you access to forgiveness programs and income-driven repayment plans.
Keep in mind, though, that you'll end up with a slightly higher interest rate compared to the weighted-average rate of the loans you include.
2. Apply for Public Service Loan Forgiveness
If you work for a government agency or an eligible not-for-profit organization, you may be eligible for the Public Service Loan Forgiveness (PSLF) program. Previously, a designated servicer managed all loans eligible for PSLF. However, the Department of Education now services those loans directly.
PSLF offers a full discharge of remaining debt after you make 120 qualifying on-time payments while working full time for an eligible employer.
3. Refinance Your Loans
Student loan refinancing involves replacing one or more of your federal student loans with a new loan offered by a private lender.
If you have a stellar credit history, refinancing can potentially help you secure a lower interest rate. You can also pick your lender based on interest rates, repayment terms and other features that are important to you.
However, refinancing will cause you to lose access to federal loan relief options, including forgiveness and income-driven repayment options. So, consider it only if you're confident you can repay your debt without assistance.
Other Reasons Your Servicer Might Change
It's possible that your student loan servicer will change even without you asking for a switch. Here are some of the reasons why that might happen:
- Your servicer didn't renew its contract. Student loan servicers are private companies that contract with the Department of Education. While those contracts are renewable, either party may opt not to continue the partnership. If that happens to your servicer, your loans will be transferred to a new one.
- Your servicer was banned. In some cases, a federal agency like the Consumer Financial Protection Bureau may prohibit a company from continuing to service federal loans. Note, however, that this typically only happens when the company has violated several consumer protection laws.
- Your loan was sold. If you have older student loans held by a private company, you may switch loan servicers when that company sells its loan portfolio to a different financial institution.
What to Do if Your Servicer Changes
Whether or not you're switching to a new loan servicer intentionally, here are some steps you can take to make sure the transition goes smoothly:
- Make sure your contact information is up to date, so you don't miss out on crucial communications.
- Save a copy of your payment history from your previous servicer.
- Obtain any other information about your loans, including the current balance, interest rate, monthly payment and repayment or rehabilitation agreements, if applicable.
- Review your credit reports to make sure that the new loan is reporting accurately.
- Create an online account with the new servicer, add your bank account information and set up autopay.
Monitor Your Credit Score to Address Potential Issues
While switching to a new loan servicer, it's important to regularly monitor your credit to watch out for potential problems and address them before they cause damage to your credit score. If your new loan is reported inaccurately, for instance, you have the right to file a dispute with the credit reporting agencies.
With Experian's free credit monitoring service, you'll get access to your FICO® Score☉ and Experian credit report, as well as real-time alerts when changes are made to your report.