Guide to Managing Student Loans When You Have Multiple Loan Servicers

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One of the frustrating facts about student loans is that each time you take one, it’s a new loan. Generally, you can only take a loan for the current school year. That means you could graduate with four, five, six or more separate loans to manage, even if you only take federal loans. If you take private loans to bridge the gap between your financial aid package and the cost to attend your school, the number could be even higher.

What is a student loan servicer

When you borrow money for your education, the money either comes from a bank or the federal government. However, the government is usually a little too busy to manage all the student loans they issue, so they outsource to a company to service the loans. These companies could be banks or servicing firms. They manage the loans and follow up with borrowers to ensure the loans are being repaid.

Private student loans issued by financial institutions may be serviced by the bank that issued the loan, or they may be sold off to other servicing companies. That’s why your current student loan service company may not be the same one you borrowed the money from.

Why you might have multiple loan servicers

If you took out more than one loan to fund your education, you might have multiple loan servicers. It depends in part on how your financial aid package was put together, as well as on how your loans have been assigned, bought and sold to other financial institutions.

When you receive a financial aid package, it usually includes awards, grants, and loans offered to you to help you pay for the cost of attendance. The loans offered could be different kinds with different terms, such as Stafford loans, PLUS loans, and private loans. The mix of federal and private loans can easily lead to multiple student loan servicers.

What multiple loan servicers mean for repayment

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Multiple student loan servicers means you owe multiple companies money. You have to stay very organized to make sure you don’t miss a payment with any of your loan servicers. Also, you may have different repayment options available to you, depending on the types of loans you have.

Federal loans

Even if all of your loans are federal loans, they may be spread out across multiple loan servicers since the government does not use just one loan service company. The government’s student loan website lists the loan servicers they use and how to contact them. If you are in need of repayment assistance, forbearance, or deferment, you will need to contact your loan servicer, not the government.

Similarly, if you need to apply for one of the many income-driven repayment plans, you will need to do so with each of your loan servicers. While each of the loan servicers will take into account that you have other loans when calculating income-driven repayment amounts, you may not be able to submit the paperwork to your loan servicers at the same time. The timing can vary from one loan servicer to another. You can change repayment plans once a year, and for any income-driven repayment plans, you are required to submit your income certification every year.

For example, I have three student loan servicers; one wants me to submit my income certification in January, another in March, and the last in June. If you try to send your income certification early, it will be rejected. You will need to submit it at the time specified by that loan servicer.

Private loans

Private loans usually don’t offer income-driven repayment plans, but they may have deferment or forbearance options available. Most loan servicers would rather work with you than see you default.

How to find out who your loan servicers are

When you have multiple loan servicers the most important thing is that you keep track of all of them. All of your loan servicers should maintain contact with you to inform you of your loan terms, repayment options, and of any changes to your loan servicer. If your loan is sold to another loan servicing company, you should be notified by both your former loan servicer and your new loan servicer.

While there is no database for private student loans, you can usually figure out who is servicing your student loan by looking at your credit report, since your credit report should have a list of all your accounts. Sign up for a free account on Credit Sesame. Your credit report card will include a list of all creditors reported by TransUnion. You can also get a free credit report every year directly from each of the three major credit reporting agencies (Equifax, Experian and TransUnion) by visiting AnnualCreditReport.com.

For federal loans, you can use the National Student Loan Data System to find out about the status of your loans and who is the loan servicer.

Should you consolidate, refinance, or leave your loans as-is

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To save money and perhaps some frustration in having to deal with multiple loan servicers you may consider consolidating or refinancing your student loans. There are pros and cons to each, and also pros and cons to leaving your loans as they are.  

Consolidating student loans

Loan consolidation combines all your loans into one big loan. You can do this with your federal loans as part of a Direct Consolidation Loan and still have access to the flexible repayment plans that federal loans offer. The Direct Consolidation loan will give you a single loan servicer for all of your consolidated federal loans. The interest rate on your new loan will be the weighted average of the interest rates on your current loans.

Consolidating private student loans is simply the process of taking out a larger private loan to replace the other loans. Again, you can reduce the number of loan servicers managing your loans.

Pros of loan consolidation

  • Fewer loan servicers, meaning fewer payments to send out each month
  • Can get a fixed interest rate on your loans
  • End up with a lower interest rate than what you had on at least some of your previous loans (if not, then loan consolidation may not be a smart move)

Cons of loan consolidation

  • Your interest rate will be higher than the rate on some of your previous loans when using a Direct Consolidation Loan
  • One large loan means you cannot target individual loans to pay them off faster

Consolidating when you have both federal & private loans

Consolidating your federal loans may be right for you if you don’t see yourself trying to pay debt off quickly. Keeping the benefits that come with federal loans by consolidating using a Direct Consolidation Loan is likely going to be best unless you are able to get much lower interest rate by refinancing.

While you can consolidate your federal and private loans with a private loan, there likely isn’t much benefit to doing so. You could save money on interest, but you will have little flexibility for the life of the loan. While you may not save as much money with a Direct Consolidation Loan, there is other value in the benefits that federal loans provide.

Refinancing student loans

Refinancing means taking out another loan to replace your old loan, ideally at a lower interest rate. You can refinance private or federal student loans. However, you can only use a private loan to refinance. Unfortunately, there is no option to refinance with a new a federal loan. When you refinance to a private loan, you will you lose access to the flexible repayment plans and other benefits that federal loans offer.

If you are dependent on an income-driven repayment plan then refinancing federal loans is likely out of the question. However, if you have some flexibility, you could potentially save thousands of dollars by refinancing your private or federal loans. While interest rates for federal loans are fairly low now, when the recession was in full force, interest rates were as high as 8.5%. Refinancing to an interest rate of 6% could save you hundreds, if not thousands, of dollars each year.

For example, let’s say you have a $50,000 student loan at 8.5% and a $15,000 student loan at 7% and you refinance the loan with a single 6% loan. If you kept the previous interest rates, you would pay over $5,000 in interest a year. With a 6% interest rate, you pay around $4,000 in interest the first year, saving over $1,000. Overall you would save over $11,000 in interest over the life of the loan.

If you have one or more private loans it is usually worth looking into refinancing to save money. You could choose to refinance your private loans and keep your federal loans as is. This would allow you to continue to take advantage of the benefits of federal loans while simplifying your finances by decreasing the number of private loans you have to manage.

Pros of refinancing

  • Save significant money on interest
  • Can combine loans, leading to fewer loans and loan servicers
  • Can choose what lender to work with

Cons of refinancing

  • If you refinance federal loans, you lose flexible repayment options
  • Tighter loan default rules with private lenders
  • If you only have one private loan, you still have to deal with the same number of loan servicers

Leaving your student loans as is

There is an argument to be made for leaving your loans as is. By keeping your loans the way they are, for federal loans you can take advantage of flexible repayment terms including income-driven repayment plans. Having a lower monthly payment for your federal loans makes it easier to put extra money towards paying off any private loans sooner.

Additionally, by not consolidating your loans, you can target them one at a time. You can specify what you would like done with any extra payments, including which loan the extra payment should be applied toward and that the extra payment should be applied to the principal.

Pros of leaving your loans as is

  • Can more easily target your loans to pay them each off faster
  • For federal loans, you can take advantage of flexible repayment terms

Cons of leaving your loans as is

  • May end up paying more interest on some of your loans
  • If you count on student loan forgiveness, you may end up with a tax bill at the end of the repayment term

What to do when you have a mix of federal and private loans with multiple loan servicers

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If you make enough money to make the standard repayment amount on all of your loans, then it may make sense for you to combine your federal and private student loans into a single loan at a lower interest rate. You could save thousands by refinancing all of your student loans either together or separately with different companies. Make sure to shop around for the best loan for you and don’t be afraid to leverage the offers of companies against each other to get the best rate possible.

If you rely on the flexible repayment terms of your federal loans, like income-driven repayment, you should approach your loans separately. For your private loans, if you are able, refinance to get the lowest possible rate.

If you have a combination of federal and private loans, consider leaving them in those separate buckets. Even if you end up with two loan servicers (one for private loans and one for federal loan), two is likely still fewer than the 3-4 or more loan servicers you have currently. Take advantage of the smaller monthly minimum payment on your federal loans by using any extra cash to pay off your private loans more quickly, since if something were to happen, like unexpected job loss, you have more options available to you with your federal loans, no matter who is servicing the loan.

Bottom line

It is possible to manage student loans when you have multiple loan servicers so long as you are proactive. Make sure you know who your loan servicers are, when and what kind of paperwork you need to send them, and don’t be afraid to call and ask them questions about your loans. No matter how you choose to manage your loans and their multiple loan servicers, you have options so long as you stay organized and on top of all your payments.

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Published May 9, 2017 Updated: May 25, 2017
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