Student Loan Account Closed Due to Transfer: What It Means for Your Credit Score

What does account closed due to transfer mean for student loans?Why did my student loan get transferred?Do closed student loan accounts affect credit score?Difference between a “transferred” account and “closed” account status

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 NelnetNelnetA federal student loan servicer that manages millions of Direct Loan accounts on behalf of the U.S. Department of Education.. 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.
• A borrower applies for the Public Service Loan Forgiveness Program, and their loans are moved to FedLoan Servicing for processing.
• A company ends its contract with the loan holder.

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.

Learn More: What Does Student Loan Permanently Assigned to Government Mean?

Why did my student loan get transferred?

There are a few reasons why your student loan debt was transferred:

• The original creditor sold the loan to another company.
• You applied for the PSLF Program.
• 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 EducationU.S. Department of Education (ED)The federal agency that oversees federal student aid programs, issues regulations for federal student loans, and is the ultimate lender on Direct Loans. and your current servicer.

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 servicerLoan ServicerThe company that manages a borrower's federal student loan account, processes payments, and handles applications for repayment plans, deferment, forbearance, and forgiveness on behalf of the U.S. Department of Education. change.

Learn More: When Does Student Loan Interest Start Again?

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.

Learn More: What Aren’t My Student Loans on My Credit Report?

Difference between a “transferred” account and “closed” account status

When a student loan account is moved to a new servicer, the old account will be updated to say “transferred”. This means that the old account is no longer active.

If you consolidate your loans, the status of each loan included in the consolidation will be updated to “paid”. A “paid” status is also considered final.

The term “closed” is used to describe revolving accounts, such as credit cards that are no longer available for charges.

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