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CHAPTER ELEVEN
Q & A
WHAT A BORROWER SHOULD KNOW ABOUT REPAYING STUDENT LOANS
Q1. WHAT LOANS CAN BE SOLD TO ANOTHER LENDER?
A. Federal Stafford Loans (subsidized and unsubsidized).
B. Federal Supplemental Loan for Students.
Q2. WHAT IS A SECONDARY MARKET?
A. A secondary market is an organization which purchases
loans originated and disbursed by another lending institution.
Q3. IS THERE A DIFFERENCE BETWEEN A SERVICER AND A SECONDARY
MARKET?
A. A secondary market is a lender (or owner) of loans
originated by a different lender. A servicer maintains
the product (student loans). Both original lenders and
secondary markets can act as servicers for the loans they
own. They can also service loans for other lenders who
prefer to limit their costs. In addition‚ third party
servicers may have contracts with lenders to service their
student loans portfolios. The servicer is paid a predetermined
fee (usually per account) for their service.
Q4. WHO OWNS MY LOANS?
A. At disbursement your loan is owned by a lender;
usually the lender from whom you received the application.
However‚ after disbursement your loan can be sold
to another lender‚ acting as a servicer or a secondary
market.
Q5. DO I ALWAYS PAY MY ORIGINAL LENDER?
A. No. If your loan is sold‚ you are notified
by the original lender and you would pay the new owner.
Federal Stafford loans can be sold more than once so by
the time your loans have been repaid‚ you could have
paid several different parties.
Your original lender or any lender may also contract
with a student loan servicer for all serving activities
related to your loan. These services include collection
of payments. So you might pay a servicer in lieu of your
actual (original or subsequent) lender.
Q6. WHO DO I CALL WHEN IāM CONFUSED?
A. It depends on what information you need. The most
important party during repayment is the one performing
loan servicing activities. This party can be the original
lender‚ a secondary market‚ or a contract servicing
organization. You must carefully read correspondence from
all parties to be certain that you understand who the
servicer is.
Q7. WHY WAS MY LOAN SOLD?
A. Although a student loan is a means to help pay
for your education‚ in the financial community‚
student loans are considered an investment as well as
a community service to be bought‚ sold and traded
much like stocks or other commodities. Often‚ student
loans are sold by the original lender to generate income
for other shorter term or more profitable lending products
or‚ in some cases‚ to provide additional student
loan funding on a local level.
Because student loans require servicing‚ many lenders
cannot afford the costs associated with this servicing‚
therefore they sell to a secondary market or use a servicer.
Q8. ARE ALL MY LOANS BOUGHT AT THE SAME TIME?
A. Not necessarily. As previously stated‚ loans
can be sold after disbursement. They can be sold while
you are in school‚ in deferment or even in repayment.
Q9. CAN I BE SURE MY LOANS WONāT BE SOLD?
A. No. Your promissory note contains a sellerās clause
which allows a lender to sell the loan.
Q10. WHO IS RESPONSIBLE FOR NOTIFYING ME IF MY LOAN IS
SENT ELSEWHERE?
A. The sender‚ the receiver and you. In virtually
all student loan transfer transactions‚ both the
originator and receiver send notification of the transfer
(which might also be called the "conversion"
or the "sale"). However‚ you must be certain
that the originator has your correct‚ current address
or you may never receive these notices.
Q11. WHAT HAPPENS TO THE MONEY I HAVE ALREADY PAID TOWARDS
MY PRINCIPAL AFTER THE LOAN(S) IS SOLD?
A. The loan is sold for the "current outstanding
principal balance" not the original principal. So
if you paid off $1‚000 of a loan worth $2‚000‚
the buyer is only purchasing a $1‚000 loan plus any
accrued interest.
Q12. DO I HAVE TO RE–FILE DEFERMENT FORMS IF MY LOAN
IS SOLD?
A. Not necessarily. If the deferment was granted or
processed by the original lender‚ there should be
no problems. All paper documents are transferred with
the loan. However‚ it is possible for documents in
process to become lost or not to reach their destination
and you may be required to resubmit the forms. A good
rule is to keep a copy of any documents sent to a servicer
(and to send all documents via certified mail‚ "return
receipt requested").
Q13. DOES MY LOAN CHANGE IN ANY WAY AFTER IT IS SOLD?
A. No‚ interest rate‚ repayment status and
deferment eligibility all remain the same.
Q14. MY LENDER HAS HIRED A SERVICER TO COLLECT MY LOAN‚
I HAVE QUESTIONS AND CANNOT GET THROUGH TO MY SERVICER BY
THE NUMBER PROVIDED. WHAT DO I DO?
A. Contact your lender or guarantor and register a
complaint. Demand a name and a direct telephone number
but be prepared to pay for the call. (Not an 800 number).
Q15. ARE THERE ANY STATE LOAN REPAYMENT OR FORGIVENESS
PROGRAMS CURRENTLY AVAILABLE?
A. There are several programs available in many states.
Please refer to the Financial Aid Office‚ your professional
associations or your residency program directors.
Helpful Hint: Keep a log of all calls made regarding
your loan with dates‚ times‚ subject and name
of contact person.
QUESTIONS YOU SHOULD ASK
1. Who holds and services all your loans?
2. What is the current status of each loan with each
servicer/holder?
3. How many loans are at each location?
4. What is the total dollar value?
5. If loans are still at original lender‚ what
are their future plans for your loans? Will they be sold?
If so‚ to what organization?
6. What are the account numbers for your loans at
each holder/servicer?
7. Will they sell your loan portfolio to an organization
of your choice?
8. Will they buy other portfolioās from other organizations?
Make sure to always log your calls‚ time‚ name
of person and issue discussed.
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