Student Loan Myth VII: My Loans were “sold” from one government backed servicer to another

We are now entering the beginning of the end as we look at our 7th student loan myth.  This is last part of the three part series.

What you think happens. You are part of your federal contracted student loan servicer and you log on to pay your loan.  It now reads as $0.00.  You are between very confused and slightly overjoyed.  After calling your servicer to see what happened, you find that your loan is now with another servicer.  All this buying and selling really screws you up because you were used to the way your company did it and this new company may not treat you the same way.

What actually happens. The Department of Education owns your loans in these situations.  Because there are too many loans  for one servicer to handle the DOE contracts several servicers to handle student loans.  There are various reasons why but to make sure all the borrowers are receiving the best service, the DOE will transfer loans from one servicer to another.  If you are with one of those servicers that deals with these federally owned loans, all companies have to play by the same rules (same payment plans, forbearances, no late fees, etc.).  As a result the same entity still owns your loan, only the servicer has changed.

Where there may be a morsel of truth to this.  Obviously student loans can be bought and sold.   The federal government at the beginning of the economic collapse bought many loans held by banks.  Private loans have been bought by different holders as well.  This thing does happen every day, but needs to be differentiated from loans that are owned by the government.