Switching It Up

I understand there are different loan servicers for your student debt. Can I change?

All college students seek the lowest loan interest rate possible, but this may not happen with their current student loan servicer. It's been documented that some have been given incomplete or incorrect information from their servicer. In fact, servicer inability has led many to attribute the high federal student loan default rate to the servicing organizations. Unfortunately, borrowers don't get to select their originating student loan servicer. But there are a few tricks that can be used to get loans transferred from one servicer to another.

The Department of Education is ultimately responsible for assigning your federal student loan servicer after your loan amount is first paid out. The loan gets disbursed when the college transfers it to your account, gives it to you directly, or does both. There are usually two payments and your loan servicer will contact you after you get the first payment.

If you need to contact your loan servicer, you can get the details from the school’s financial aid office. If your loan was dispersed in a previous college, you can contact the servicer when you need to change your details or address, transfer to another college, graduate, or drop out. You can view all of the details of student loans and servicers on the Federal Student Aid website.

Since the Education Department controls the loan servicers, they can switch them if they have reason to do so. This could be part of efforts to ensure all borrowers are provided with customer service and repayment support. If yours does get transferred, you'll get notified in the form of a welcome letter from the new servicer.

There may arise a situation when you want to change servicers yourself, since the appointed one has a large impact over how you manage your debt. According to the Consumer Financial Protection Bureau, inefficient student loan servicers can be a source of significant stress amongst students. Their study found that 64% of calls involved problems dealing with student loan servicers.

Refinancing a student loan is one way to get rid of a federal loan servicer that is not working for you. You may also get a better interest rate by refinancing and are likely to end up with a more efficient servicer.

You will have a good idea of what you do not want from a servicer, so use that as a foundation to find a new one. Compiling a wish list is a good start, include customer service, fair repayment policies, refinancing options, lower interest rates, unemployment protection, and deferment options. Do some research to compare companies and their services, and read up on student loan features, rates and terms.

Select the best terms for refinancing that give you the most control over your debt, not the servicer. You may be subject to a ‘soft credit check’ by the new servicer to generate a quote without affecting your credit score, you can use this to get a few other quotes.

Switching student loan servicers could be the end of incorrect information and ongoing headaches from your assigned federal servicer.

I had three jobs in college. The best day of my life was when I paid off my student loans, on my own - Jessica Seinfeld.

(John Regan is a former Director of Sales for equity research).