How to transfer your student loans to a different lender

At some point, you may want or need to change your student loan servicer or lender. This might be because you’re no longer satisfied with their service, your loan terms, or both.

While a servicer is the company that manages your loan, a lender originates the loan or lends the money for it. Changing your servicer won’t transfer your student loan to another lender. But there are ways to switch lenders — and simultaneously get a new loan servicer.

• Can you transfer your student loans to another lender?
• Switching servicers through federal student loan consolidation
• Transferring lenders by refinancing your private student loans
• What happens after you transfer student loans to another lender?
• How to refinance your student loans

Can you transfer your student loans to another lender?

The U.S. Department of Education is your lender when you take out a federal student loan. The government funds federal student loans, but hands off billing, managing income-driven repayment plans, assessing forgiveness eligibility, and other services to a loan servicer.

If you have private student loans, a private company makes and owns your loan. The private lender typically will also service the loans it makes.

You may want to transfer your student loans to another lender for several reasons. Maybe you’re frustrated with the customer service experience. Or perhaps you’re looking for a better interest rate and terms.

No matter your situation, you should know that private lenders can sell or transfer your student loan debt to different creditors. But in most cases, you can’t initiate the process as a borrower.

The good news is you can transfer private and federal student loans by refinancing into a new loan. And, while consolidating your federal student loans into a federal Direct Consolidation Loan won’t get you a new lender, it could land your loans with a new student loan servicer.

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Switching servicers through federal student loan consolidation

If you have federal student loans, consolidation is an option. When you consolidate your federal student loans, you get a new Direct Consolidation Loan from the Department of Education and use it to repay one or more existing federal loans.

The interest rate you receive will be the weighted average of the interest rates on your other loans. While consolidation doesn’t guarantee a lower interest rate, it can lead to more flexible terms and lower monthly payments.

You might want to explore this option if you have multiple federal student loans with different servicers and are overwhelmed with the debt payoff process. Consolidating will give you one payment and just one servicer to deal with. Also, if you’re having trouble paying back your federal student loans, locking in a longer repayment term through consolidation can help ease some financial stress.

Just keep in mind that you’ll likely pay more interest in exchange for extending your repayment term. Also, any payments you’ve already made won’t count toward forgiveness available through Public Service Loan Forgiveness or income-driven repayment plans.

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Transferring lenders by refinancing your private student loans

Student loan refinancing is when you take out a new private loan with better terms to pay back your existing loan. This strategy may work for both private and federal student loans. With a student loan refinance you may repay your student loans faster, reduce your monthly payments, and lower your interest rate to potentially save hundreds or thousands of dollars over time.

You may benefit from student loan refinancing if:

• Your credit has improved since you took out your original loans and you think you can qualify for a better rate than the ones you currently have.
• You’re paying a variable interest rate and prefer a fixed rate you can budget for in advance.
• You want to extend your repayment term and lower your monthly payments.

But before you move forward with refinancing, know that it can be difficult to qualify for a private student loan refinance if you don’t have a good or excellent credit score, or a cosigner with good credit. Also, if you refinance your federal student loans into a private student loan, you’ll no longer have access to federal benefits like income-driven repayment and student loan forgiveness.

What happens after you transfer student loans to another lender?

Once you transfer your student loans to another lender, you can expect some changes. Depending on the strategy you chose and the lender you decided on, you may get a different interest rate and monthly payment amount. The transfer might also affect the total amount of interest you pay overall and how long it takes you to repay the loan.

If you take out a federal Direct Consolidation Loan, you could get a new loan servicer. The Department of Education has a list of loan servicing companies it works with, and their contact information, on StudentAid.gov.

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How to refinance your student loans

If you want to refinance your student loans, follow these steps:

• Check your credit. When you apply for a student loan refinance, a lender will check your credit. This is why you should know where you stand credit wise before you apply. You can visit AnnualCreditReport.com to pull free copies of your credit reports from the three major bureaus. Dispute any errors or inaccuracies you find, as they may interfere with your ability to qualify for a refinance.
• Shop around. Not all student loan refinancing options are created equal. That’s why you should compare the rates and terms of at least three lenders to find out which option will save you the most money. Also, compare the offers you find to your current student loans to ensure you don’t choose one with higher rates and less favorable terms.
• Apply with the lender of your choice. Once you decide on a lender, complete the refinancing application. While each lender has its own unique application process, most will allow you to apply online. Be sure to fill out your application thoroughly and accurately to avoid delays.
• Close on the loan. After you apply for the loan, the lender will review your application and get back to you with a decision, usually within a few days. Keep in mind that if you prequalified for a loan, there’s no guarantee you’ll get approved for it. Your lender will inform you of your options if this happens. If you’re approved, you’ll review and sign your loan documents.
• Continue to pay your original student loans. You’ll need to keep making payments on your original loans until the new lender gives you documentation that lets you know your existing loans have been paid off. Then, you’ll start to make payments on the new loan.
• Set up automatic payments for your new loan. If you’d like to simplify the loan payment process and avoid missing payments, you might want to enroll in automatic payments for your new loan. Fortunately, many lenders offer an autopay discount that can help you save even more on interest. If you do sign up for autopay, make sure you always have enough money in your account to cover your monthly payments. Remember, you can pay more than the minimum each month if you want to pay off your balance sooner.