On July 12, 2013, the regulator announced that they have switched or transferred the loans to four profit financial institutions and 4 non-profit organizations as reported by Credit.Com on August 14, 2013. There is a good chance that good borrowers’ outstanding loan balances swell after their loans got transferred to the new servicing companies.

There are two possible reasons for increasing loans:

1. Though, one does not know the real reasons of the   transferring loans policy to other loan servicing company, it can also be inferred as selling (accounting jargon for it: factoring) the outstanding loans to those mentioned companies.  The buyers of the loans will pick the borrowers with good payment history.  The regulators will get their money back (perhaps including the bad loans from the buyers), and use the in-flow cash for the next cycle in the loans business.  The new owners of the loans will pass any “transaction cost” plus “profit margin” plus the bad loans (if they are included in the agreed purchase price) to the borrowers.
2. Another possible horrifying story is that when the loan got transferred from Department of Education to the new loans servicing entities; either profit, semi-profit or not-profit organizations then the total original borrowed amount and not the last and current loan balance was transferred.  This means, payments that have been done prior to transferred date will not showed up on the borrowers’ account with the new loan servicing institutions.  Therefore, the borrowers have to pay twice to different entities from the same original loans.  Therefore, the “new loans” that the “good” borrowers have to pay may increase tremendously.  New owners of the loans and the regulator are the apparent winners of this transaction, and the students are the clear losers, which is a tragic and unfortunate.

The Association has completed study on the student loans and find the answer.  Please click here to read the complete results!

Please tell us your story.