After two years of deferring (read: hiding from) my student loans in grad school, I got a full-time job and set up a payment schedule with my loan servicer. However, five months later, my parents forwarded me some mail that had been piling up around the house. Among the alumni donation requests and unpaid parking tickets was a letter from a student loan servicer saying that I owed them money … and I was 55 days past due on my first payment.
I had never heard of this phantom loan servicer, but in my research I realized that I had not one but three servicers to send checks to.
Fortunately, the loan officer noticed the wetness behind my ears and took pity on my overdue payments. My account was put in forbearance — effectively forgiving my missed payments — which allowed me to start making payments without any penalty to my credit or a hike in my interest rate.
But where did all these servicers come from? How had I never heard their names before?
Where’d this loan come from?
A little bit of background: As of 2010, federal student loans are made directly with the Department of Education. Once the Feds dole out your money, they transfer your account to a loan servicer, which in turn takes care of all of the nitty-gritty elements of lending.
Applying for student aid in college seemed simple enough: I’d fill out a Free Application for Federal Student Aid (FAFSA), get awarded a combination of grants and loans, and then never see the money because it was always applied directly to my tuition bills. I assumed that one day I’d get a big bill saying I owed the government or my school a bunch of money, but I didn’t spend too much time worrying about it.
What I didn’t realize was that my loans were being bought and sold among private lenders or contracted out to loan servicers. Some of my loans switched hands multiple times.
While lenders are supposed to notify debtors when their loans are moved around, if I was notified sometime in college, I’m sure the message ended up in the trash or at my parents’ house on the other side of the country.
But it wasn’t just my indolence that generated my befuddlement; there was something legitimately confusing going on too.
At the same time as I was taking out these loans, the federal student-aid program changed significantly. Before 2010, Stafford loans were often made with private banks and, in turn, backed by the government — a policy designed to encourage private lenders to provide a lower interest rate on student loans.
Though some of my loans had been made directly with the U.S. Department of Education, others had been made with a private lender with federal backing.
The result of all this was that my eight loans, which I had naively assumed were all with the same lender, were held by a combination of private lenders and the Department of Education, who all contracted different loan servicers to handle my billing.
Happily, some of my lenders chose the same servicer.
Stay on top of borrowed money
If you need to find details about your federal student loans, go to the National Student Loan Data System. Once you log in, you can view all of your loan details including when you took out the loan, how much you owe and who your current servicer is.
If I could do it all over again, I’d pay more attention to the lives of my loans. Simply keeping an accordion folder with my FAFSA notices and loan information would have saved me time and stress.
More importantly, staying on top of borrowed money provides a good perspective on how much it costs to go to school. It’s easy to take your education for granted if you don’t internalize the financial cost of the experience.