When a student loan account is transferred and subsequently closed, it’s essential to comprehend the contributing circumstances. Typically, such closures occur when the loan is shifted to a new lender or servicer, as in the recent case where Great Lakes transferred loans to Nelnet. This resulted in borrowers receiving notifications from services like Credit Karma about the closure of their USDOE/GLESI account.
A transfer-induced closure can impact your credit score, as lenders and servicers are mandated to report these changes to credit bureaus. Therefore, despite timely payments, you might witness a dip in your credit score.
Ahead, we’ll explore the implications of student loan account closures due to transfers.
What does account closed due to transfer mean for student loans?
If your credit report shows that a student loan account was closed due to a transfer, it means that your loan has been sold or transferred to another student loan servicer. This typically happens with federal and private student loans when:
A borrower falls behind on monthly payments and defaults.
The three major credit bureaus are notified after your account is closed, which can cause your credit score to temporarily drop — even if you’ve been making all of your payments on time. Your score could decrease if the student loan was your only installment account.
The closed account will remain on your credit history for at least seven years — it’ll stay for 10 years if it was closed with a positive payment history — unless you have it removed. Read more about how to remove student loans from credit report.
You defaulted on your student loans, and they were sent to a collection agency.
You consolidated the loans into a Direct Consolidation Loan.
You refinanced your federal or private loans into a new loan with a private lender.
If you have federal student loans, your servicer may change due to a contract ending between the U.S. Department of Education and your current servicer.
The department is in the process of moving millions of student loan borrowers to new servicers after FedLoan Servicing and Navient announced during the pandemic that they wouldn’t be renewing their contracts.
In the past, moving borrowers to new companies was often chaotic and error-prone. But the current student loan pause extension, which is set to end this May, has given the department time to try to minimize mistakes.
Moving to a new servicer when your account is in good standing won’t change your interest rate or loan balance. And you’ll still have access to the same repayment plans, options to pause payments with deferment and forbearance, and student loan forgiveness programs. Here’s what to do if you’ve had a student loan servicer change.
Do closed student loan accounts affect credit score?
Closed student loan accounts can have a minor, negative effect on your credit score. The servicer that was handling your loans will contact Equifax, Experian, and Transunion to update your account status.
Your score shouldn’t drop too much if you’ve been making your payments on time and have other installment accounts like a mortgage or a car note.