Transferring schools? 6 things to know about your student loans

With U.S. universities making academic adjustments due to the ongoing COVID-19 crisis, more college students are taking stock of the situation and are transferring to new schools that offer them a better collegiate experience.

“Transferring schools is exceedingly popular,” said Karen Aronian, a former college professor and owner of Aronian Education Design LLC, in New York City. “Approximately one-third of students will transfer schools, according to the National Student Clearinghouse's study.”

The reasons why students transfer schools depend on their individual needs -- and the coronavirus pandemic is an increasingly popular reason.

“In general, students may change schools for everyday reasons, like switching to a community college or going from a two-year college to a four-year college,” Aronian said. “These days, many students are transferring due to COVID-19's impact. They may be changing majors or pursuing their 'first choice' school they didn’t originally attend because they weren’t admitted for enrollment.”

“Also, some students transfer because their school is not a good fit socially or have buyer's remorse and seek a change to a school that better suits them,” she added.

Student loan checklist for transfer students

When college students do switch schools, the transfer can have a sizable domino effect on other factors, especially financial ones like student loans. That’s exactly why getting a full grip on student loans should be a top priority when transferring schools, with these aspects in mind:

1. You're responsible for repaying the loan
2. How student loan disbursements work
3. Alert your servicer to avoid immediate repayment
4. Track student loans
5. Understand the larger financial picture
6. When to pay off the loan

1. You're responsible for repaying the student loan

You won’t have to repay your college loan right after a school transfer — but don’t expect it to disappear, either.

“I transferred colleges 10 years ago, and while I was able to defer the federal loan I took out, I was still responsible for paying it back, even though I did not finish my degree at that institution,” said Mark Perlman, founder of TheDealExperts, a credit card comparison platform. “While in school, you can continue to defer the loans, but when you complete your degree, you have to pay back all loans, including interest accrued.”

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2. How student loan disbursements work

Whether you transfer colleges or not, loans are disbursed by academic term and to the college -- not the student.

“That means that if you're a freshman at a college on semesters, you'd get $2,750 for the fall disbursed directly to the college,” said Ann Garcia, a financial planner at Independent Progressive Advisors, in Portland, Oregon. “If you transfer, the remaining $2,750 can be disbursed at the new school. Students who transfer simply need to log into their Federal Student Aid (FSA) loan account and add the new school so that their FAFSA data is transferred with their student loan eligibility.”

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3. Alert your servicer to avoid immediate repayment

Technically, when a student leaves the original school, the loans go into repayment status. “In that scenario, the student needs to contact their loan services provider and put the loan back into in-school deferment,” Garcia said. “This is especially important with subsidized loans since interest will begin to accrue if they go into repayment.”

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4. Track student loans

As far as tracking loan obligations, all federal student loans are accessible through the student's federal student aid account. “Just log in with your FSA identification number (it’s same as your FAFSA number) and review all your loans, including loan servicers,” Garcia said. “Note that private loans are serviced by the financial institution where the loan originated.”

5. Understand the larger financial aid picture

If a transferring student has financial gift aid of any form -- merit or need (other than Pell Grants) -- that student risks losing that aid when they transfer. “Most schools offer far more scholarships to incoming freshmen than to transfer students,” Garcia said. ‘The best thing to do is to make sure you know the financial aid policies of the school you're going to and that you're not leaving thousands of dollars on the table.’

6. When to pay off the student loan

Perlman advises paying off older student loans if you can, while still in school.

“The loans aren't going anywhere, and you'll have to pay them eventually,” he said. “If you don’t address the student loan, it will be harder to keep track of which loan is from which school once you have completed your education.”