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While on the work grind at the office, you get an email from the HR department, inviting you down to pay them a visit. Uh-oh. What could possibly be up? You’re a rock star on the job, so you cannot imagine what the trouble could be.

The good news: you’re not getting fired. The bad news: they tell you that part of your wages are going to be garnished in order to pay back your outstanding school loans.

What Is Student Loan Wage Garnishment?

Student loan wage garnishment is a tough thing to face; what makes it doubly troublesome is the official letter from the U.S. Department of Education that notifies your employer that a percentage of your paycheck will now go directly to paying back your outstanding student loan balances.

This may be something that would be a big enough bummer when you’re the only one who knows about it. When your employer is let in on the secret, and ordered by the government to reconfigure your paycheck, the awkwardness knows no bounds.

Student loan wage garnishment does not make it easy for you or your employer . Your company’s payroll department generally executes (and sometimes calculates) the student loan garnishment amount, and forwards the payments to the correct agency or creditor. In some cases, your employer can be held liable for the full amount or a portion thereof for failure to comply with the garnishment. This can include interest, court fees, and legal costs.

If it’s any consolation, you would not be alone in this situation. Let’s start with the macro: according to
CNBC , more than one million people default on their student loans each year. By the year 2023, nearly 40% of borrowers are expected to default on their student loans. Outstanding debt in the U.S. has tripled over the last decade and now exceeds $1.5 trillion. That number far exceeds the traditional debt of autos and credit cards.

Now for the micro: according to a study by the ADP Research Institute , 7.2% of employees had their wages garnished in 2013 (the latest research we could find on this). Of that total, 2.9% of those garnishments were from student loan and court-ordered consumer debt garnishment.

Defaulting on your student loan is not ideal. We’re going to share some details on federal student loan garnishment, and how you can avoid defaulting on your loans.


💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.

How Does Federal Student Loan Garnishment Work

Your wages can’t be garnished out of nowhere. It starts with your loan becoming delinquent, which happens the first day after you miss a payment. Your loan will remain delinquent until you pay back everything you owe.

If you are more than 90 days delinquent on your payment, your loan servicer reports the missed payments to the three national credit bureaus (Equifax, Experian, and TransUnion). This will negatively affect your credit, as payment history makes up 35% of your score.

Eventually, if you still fail to repay your debt, the government may resort to garnishing your wages and/or withholding your tax refund, which they can do without a court order. Legally, they can garnish up to 15% of your disposable pay. Disposable income is calculated by taking your gross income, and then subtracting your tax obligations and other withholdings such as Social Security, Medicare, state tax, city/local tax, health insurance premiums, and involuntary retirement or pension plans.

The good news is that there is a temporary exception to this process. To help financially vulnerable borrowers transition to making their student loan payments after an automatic, three-year pause that ended in October, the Biden administration implemented an “on-ramp” period. From Oct. 1, 2023 through Sept. 30, 2024, borrowers who miss payments will not be considered delinquent or in default, have missed payments reported to the credit bureaus, or have their loans referred to collections agencies.

Ways To Help Prevent Your Student Loan From Becoming Delinquent

If you are concerned about wage garnishment for your federal student loans, there are proactive steps you can take to keep your account from becoming delinquent in the first place:

Scheduling automatic payments. You can have the monthly obligation automatically and electronically deducted from your checking or savings account.

Building an emergency savings fund. You can save at least six months of backup funds that you can use specifically to make your monthly payments. This may come in handy should you be without income for a time.

Ways To Help Prevent Your Student Loans From Going Into Default

Based on your financial circumstances, there are a few options available that may allow you to make your student loan payments more affordable or even put them on a temporary hold:

Income-Driven Repayment (IDR) Plans: With these plans, your student loan payments are adjusted based on your discretionary income. Depending on the plan you choose, the government typically extends your repayment terms and readjusts your monthly payment, and may eventually forgive the balance of your loan. The newest IDR plan, the SAVE Plan, will provide the lowest monthly payments once it’s fully implemented in July 2024.

Forbearance or Deferment: If making payments is becoming or has become nearly impossible, you can ask your lender to defer your payments or request forbearance. If they agree and you qualify, you can delay your payments and avoid default.

Student Loan Refinancing vs Consolidation

If student loan wage garnishment is the nightmare that comes true, here are two options that may be able to stop it: consolidating or refinancing your student loans. First, know the difference between the two (and it’s a pretty big one):

When you refinance student loans, you’re actually paying off your existing loans with a new loan from a private lender. In this process, you can possibly reduce your payments and make them more affordable. (You may pay more interest over the life of the loan if you refinance with an extended term.) Or you may be able to lower your interest rate. However, you also will lose out on certain benefits that come with federal student loans, like deferment and forbearance, and lose your eligibility for all other federal student loan programs.

When you consolidate your federal student loans with the federal government, you essentially “bind” them all together into one, big loan. Sounds like a plan, but there can be a few downsides; this could result in you paying more in interest over the life of your new, consolidated loan because the interest rate on your consolidated federal loan will be the weighted average of all your loans, rounded to the nearest eighth of 1%. You can also only consolidate your federal loans under a Direct Consolidation Loan, which has its own requirements if you’re already in default, and isn’t available for private student loans.

Consolidating a Defaulted Loan

According to the U.S. Department of Education, if you want to consolidate a defaulted loan, you must make “satisfactory repayment arrangements” on the student loan with your current loan servicer before you consolidate.

If you want to consolidate a defaulted loan that is being collected through garnishment of your wages, or that is being collected in accordance with a court order after a judgment was obtained against you, you may only do so if the garnishment order has been lifted or the judgment has been vacated.

Refinancing Your Student Loans

You may be able to combine your private and federal loans into one brand-new, private refinanced loan.

You may be a good candidate for student loan refinancing if you have a steady income, a consistent history of on-time debt payments, and you don’t have need for federal student loan benefits—among other important personal financial factors. (When you refinance your federal loans with a private lender, you can no longer access any federal loan benefits.)

A lender will most likely offer you a few choices for your refinanced student loan: fixed and variable interest rates, as well as a variety of repayment terms (this is often based on your credit history and current financial situation). If you qualify for refinancing, your new loan should (hopefully) come with a new interest rate or a new loan term that can lower your monthly payments.(You may pay more interest over the life of the loan if you refinance with an extended term.)

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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There are a variety of reasons why a law student may consider transferring schools. Maybe you don’t love the professors or environment, the city isn’t a fit, the tuition is too high or you need to relocate for personal reasons. Whatever the reason, transferring schools is a big decision that shouldn’t be taken lightly.

While you are at your current school, focus on your grades and rounding out your resume. These are two factors admissions officers may evaluate when you apply to transfer. Continue reading for a guide on how to make a transfer happen and what you should consider before choosing to make the move.

What Is a Law School Transfer?

Typically, completing law school takes three years of full-time study. A law school transfer involves switching from one law school to another while pursuing a JD. In most cases, transfers take place after a student completes their first year of law school, commonly known as their 1L year.

It is possible to transfer after your second year, but this is less common because credits taken during your 2L year may not transfer.

What to Consider Before You Transfer Law Schools

Switching law schools involves a lot of work and some trade-offs. Here are some questions to ask yourself before you take the leap:

Is the new law school ranked significantly better than your current one?

If you’re looking to change schools in order to upgrade to a better one, make sure it’s worth the trouble. A school that’s ranked only slightly better or falls within the same tier won’t change your job prospects very much, and what you sacrifice could eclipse any benefits. Aim to jump to at least the next tier of law schools. If you’re already in the top tier, you may want to focus on just the top five schools.

Will a “better” school be right for you?

When you move to a higher-ranked school, you may see your grades fall or feel stressed because of stiffer competition. You may get less personalized attention from faculty and administrators and have a harder time getting to the top of the list for institution-based law school scholarships and internships. Setbacks like these aren’t guaranteed, and you can certainly bounce back, but make sure you think through the move carefully and get to know your prospective institution well.

Are you willing to put in the work?

Applying as a transfer student requires pretty much the same amount of time and effort as applying to law school the first time. You’ll also have to pay application fees of up to around $100 per school.

Are you OK with potentially losing out on opportunities?

When you change schools, you may have to give up scholarships, the chance to study abroad, or the opportunity to participate in the law review or moot court. You will also have to give up your first-year grades (you don’t bring them with you to the new school).

Can you deal with setbacks in your relationships?

When you transfer, you might lose the bonds and connections you’ve started forming during your first year.

Conversely, many of the students at your new school will have formed strong friendships as well, so you might have a harder time breaking in. Considering the importance of networks in career advancement, this could affect not only your personal life, but also your professional future.


💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

How to Complete a Law School Transfer

Most students transfer after their first year, which allows them to receive a degree from their new school with no mention of the original institution. Many schools will not allow you to transfer after your second year, or if they do, they’ll still require you to attend two additional years at the new school.

Applying for a transfer looks very similar to applying for law school in the first place. Generally, you’ll need to submit:

•   A résumé

•   A personal statement

•   Two letters of recommendation

•   Transcripts

•   LSAT or GRE scores

Preparing Your Application

Applying to transfer does not guarantee that you’ll be admitted. Your GPA and class rank are usually the most important factors in your application and are weighed more heavily in transfer decisions than your LSAT score and extracurricular activities.

Most schools will only admit transfers that are in the top 10% of their class. Your class rank must be even higher if your school is ranked relatively low. To improve your chances, focus on getting good grades in your first year. You should also start early on building relationships with professors who might offer recommendations by reaching out to them, attending office hours, and speaking up in class.

A law school transfer personal statement must focus not only on why you want to study law in general but also on why you want to transfer. The reason you cite should be substantive and tied to the institution you want to attend, rather than a purely personal motive, such as being closer to family.

Don’t just cut and paste the essay you submitted when applying to law school initially, and don’t turn in a generic statement. Instead, tailor the essay to the school you want to transfer to, and why they are the right fit for you. Steer clear of trash-talking your current law school — that doesn’t look good to the admissions committee. Instead, speak in positive terms about what you’ve gained and accomplished, and make clear what contribution you would make to the school if you were accepted.

What Are Admissions Officers Looking at in a Transfer Application?

The exact criteria an admissions committee evaluates may vary based on the law school. However, there are commonalities that admissions officers evaluate and opportunities for you to strengthen your application as a law school transfer. Some of the top criteria evaluated include grades, letters of recommendation, résumé, and your personal statement.

•   Grades. The grades you earn during your 1L year can illustrate how you’ll perform in future years of law school. As mentioned, LSAT scores will still likely be a factor, but may fall in importance after completing 1L classes.

•   Letter of recommendation. This can help the committee understand how you performed in your 1L classes and any other criteria that could help you stand out from other applicants. Think carefully about which professor may be the best fit to write a letter on your behalf and be open about your reasons for wanting to transfer.

•   Resume. The admissions committee will also likely evaluate any law-related extracurriculars you participated in during your 1L year.

•   Personal Statement. The personal statement is an opportunity to explain why you are interested in transferring in addition to why you want to pursue a law degree and how it will influence your future career plans.

What to Do if Your Transfer Is Accepted

If you’re admitted as a transfer student, congratulations! Once you’ve committed to switching schools, you’ll need to take care of a number of things to ensure a smooth transition. First, inform your current school of your plans to transfer (and tell your landlord if you’re moving). Next, get in touch with your new school to confirm which of your credits will be transferred, and take careful note of all the classes you need to earn your degree.

You will also want to reach out to the financial aid office to make sure your package is squared away. And don’t forget to contact career services to connect with your advisor and sign up for on-campus interviews and other opportunities. If you’re moving, you’ll need to get set up in a new apartment. Once you’re at your new school, work extra hard to build relationships with professors and peers. These will pay off in terms of future recommendation letters and lifelong networks.

How Student Loan Refinancing Can Help

As a lawyer-in-training, you’re probably on track to make a good living once you graduate. But in the meantime, law school can be an expensive endeavor. That high price tag, especially when combined with the cost of undergraduate education, is one reason why law school students can expect to graduate with more than $100,000 in student debt. In fact, According to a 2020 survey conducted by the American Bar Association (ABA) Young Lawyers Division and AccessLex Institute, median cumulative student loan debt was $160,000.

Maybe you are looking to transfer because your current law school is too expensive, or maybe you’re upgrading to a higher-ranked school that also comes with higher costs. Either way, student loan refinancing can help get your law school debt under control.

What Is Student Loan Refinancing?

Student loan refinancing involves getting a single new loan from a private lender to pay off one or more existing student loans. Your new loan comes with a single payment, and potentially, a different interest rate and repayment term. You can refinance both federal and private loans. However, if you refinance federal loans, you permanently forfeit all federal protections and benefits such as income-driven repayment plans, deferment and forbearance options, and Public Service Loan Forgiveness (PSLF).

Lenders will usually evaluate factors such as your credit score, credit history, and income, among other personal factors to help determine the loan terms. It is possible to refinance student loans with bad credit, but this can be more challenging or result in a higher interest rate or less favorable terms. That’s why some borrowers may consider adding a cosigner to strengthen their application.

Refinancing without a cosigner is also an option. Borrowers with limited history or low credit scores may want to spend some time building credit before refinancing if they do not want to rely on a cosigner.

The question is, should you refinance your student loans? The answer is deeply personal, but being an informed consumer can help you make the decision. A major draw of refinancing is to secure a more competitive interest rate, which could help you save money over the life of the loan. You can get an idea of how refinancing can influence your loans by using SoFi’s student loan refinance calculator.

If you think refinancing may be a fit for you, shop around and compare terms to find the best rates and terms available to you. On your way, consider refinancing student loans with SoFi.

Recommended: Guide to Establishing Credit

The Takeaway

There are a lot of reasons students may want to transfer law schools. Typically, this happens after a student has completed their 1L year. Admissions committees will generally evaluate factors including a student’s 1L grades, letters of recommendation, their resume, any law-related extracurriculars, and the student’s personal statement, among other factors as determined by the school.

Nearly 90% of law students graduate with student loan debt. Student loan refinancing might be right for you if you have good credit and could potentially qualify for a lower interest rate. Keep in mind that if you refinance federal loans, you give up the opportunity to take advantage of income-based repayment plans or federal relief offerings such as deferment or forbearance. You can consider refinancing your undergrad loans while in law school, or once you have a steady job after law school, you can refinance your undergrad and law school loans.

You may also consider taking out a private student loan with SoFi to finance the rest of your law school experience. SoFi offers flexible repayment plans and a quick application with no fees.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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If you dread your student loan payments each month because you aren’t sure whether you can afford to cover the minimum payment, know that there are solutions to make student loans more manageable. One option is hiring a student loan consultant to help create a customized repayment plan.

While some borrowers might find their advice valuable, either might find it’s not worth the expense – especially if they’re already struggling to find a way to make their loan payments. Here’s what you should keep in mind if you’re thinking of working with a student loan consultant.

What Is a Student Loan Consultant?

Americans owe nearly $1.8 trillion in collective student loans. As student loan debt has increased, student loan consultants have emerged to help students navigate the loan process. Most student loan consultants work independently from colleges or universities, and are not affiliated with specific repayment programs. Student loan consultants work one-on-one with borrowers to identify their repayment needs and try to set them up on a path of debt payoff success.

Knowing What They Can Help With

There are five main ways a student loan consultant can help you:

•   Recommending a student loan repayment strategy

•   Offering personalized guidance specific to your finances

•   Explaining student loan jargon

•   Researching your loan details

•   Communicating with lenders on your behalf

Before seeking out a student loan consultant, it might be helpful to identify your specific needs. If you don’t understand the difference between consolidation and refinancing, for example, then talking with a consultant about student loan jargon could be helpful.

If calling lenders sends you into a panic, maybe that’s where you want the consultant’s help. And if you’re struggling to make your minimum monthly payments, you could potentially talk to a consultant about finding a better student loan repayment plan.


💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

Understanding What You’re Paying For

The cost of a student loan consultant can vary widely, and can come in the form of an hourly fee, flat rate, or annual fee. You could expect to pay anywhere from as little $50 to upwards of $600 or more for help from a student loan counselor. Making sure their services are worth the money you are paying is important, of course, and that can be done by confirming that their services aren’t something you could do on your own—like finding a federal income-driven repayment plan (which we’ll get into below). It’s also important to ensure that the cost doesn’t prevent you from making your student loan payments.

Before speaking with a consultant, finding out what is possible and what sounds too good to be true can help you weed out any scammy student loan consultants. And when you’re trying to understand what you can do on your own (without a consultant’s help), a good place to start is the Consumer Financial Protection Bureau .

Knowing What Programs Are Available for Free

A fair number of programs to help with student loan payments are available to everyone, without a fee. For example, before seeking out a student loan consultant, you could look into enrolling in a federal income-driven repayment (IDR) plan.

Typically, when you graduate from college or reduce your attendance to under half-time, you’re automatically put on the 10-year Standard Repayment Plan. However, borrowers looking to reduce the monthly payments on their federal student loans may qualify for an IDR plan, which reduces your monthly payment to a small percentage of your discretionary income and extends the repayment term up to 25 years (the exact details depend on the specific plan you choose). After the repayment period is up, any remaining balance is forgiven (but may be subject to taxes).

The newest IDR plan, Saving on a Valuable Education (SAVE), caps monthly payments at 5% to 10% of your discretionary income and shields more of your income from the payment calculation compared to older plans. It also forgives student loan debt as soon as 10 years into repayment for borrowers with smaller starting balances.

Because these repayment plans extend your loan term, you may pay more interest over the life of your loan. Even so, it could bring much-needed immediate relief and result in some loan forgiveness.


💡 Quick Tip: When refinancing a student loan, you may shorten or extend the loan term. Shortening your loan term may result in higher monthly payments but significantly less total interest paid. A longer loan term typically results in lower monthly payments but more total interest paid.

Asking a Neutral Party for Help

If you have a conflict regarding one of your federal student loans, you can ask for help from the Federal Student Aid Ombudsman Group , which serves as a neutral party. They can resolve discrepancies with loan balances and payments, and help identify loan repayment options. You can also try to resolve the dispute before contacting the Ombudsman Group. Or you can file a complaint through the Consumer Financial Protection Bureau.

Considering a Nonprofit Credit-Counseling Agency

The National Foundation for Credit Counseling can help you find a qualified credit counseling agency, which can aid you in creating a budget and even negotiating a new payment plan with creditors. The U.S. Department of Justice also offers an online database of credit-counseling agencies .

Making Sure the Consultant Isn’t Providing a Redundant Service

It’s important to make sure the consultant’s service isn’t something you could do on your own. For example, you could lower your monthly payment on your federal student loans by opting for an income-driven repayment plan without paying a consultant for their services.

You can also consider consolidating your federal loans through a Direct Consolidation Loan, which is also free. A Direct Consolidation Loan allows you to combine all of your federal loans into one, and gives you a new interest rate that’s a weighted average of your current interest rates, rounded up to the nearest eighth of a percent. While you won’t have a lower overall interest rate, you could lower your monthly payments and simplify the repayment process.

Refinancing Your Student Loans

If you’re looking for alternative ways to pay off your student loan debt, you could also consider student loan refinancing. When you refinance your student loans, you take out a new loan with a private lender and then use the proceeds to pay off one or more existing student loans. Ideally, the refinanced loan has a better interest rate and terms.

Extending your loan term through refinancing can lower your monthly payments. But it does mean paying more in interest over the life of the loan.

Alternatively, refinancing to a lower interest rate and shorter loan term could cost you less in interest over the life of the loan and help you pay it off faster. Keep in mind, however, that refinancing with a private lender means you’ll no longer be able to access federal loan benefits like income-driven repayment plans.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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If your student loan was sold to another company, you will be notified of your new servicer and make your same monthly payment to them. Your old lender will send the monthly payments to your new lender while this transition occurs, but it’s still ultimately up to you to make sure it’s getting to the new lender by the payment due date.

Selling student loans between companies is a common practice, but learning that your loan was sold to another company might feel jarring if you aren’t prepared for what this entails. If a student loan transfer occurs while you’re paying back your loan, here’s what you should know.

Student Loans Explained

Student loans are an installment-based financing option for students who don’t have cash on-hand to pay for their education. Federal loan funds are offered by the Department of Education, such as Direct Loans. You can also borrow private student loans from non-government sources, such as banking institutions, credit unions, and online lenders.

When you borrow a student loan, the lending company provides you with a lump-sum loan disbursement to pay for school. In exchange, you agree to make incremental monthly payments to the lender for the principal loan balance, plus accrued interest. Your repayment period is predetermined and is on your loan agreement. Typically, you’ll have multiple years to repay your student loan in full.

Most federal student loans, such as Direct Subsidized Loans and Direct Unsubsidized Loans, are not due until you graduate, withdraw, or drop below half-time enrollment. You will also have a six-month grace period on these loans. Private student loans typically are not due while in school, either, and may come with their own grace period. This will vary by lender, so make sure to look at all the details of the loan before signing.

How Selling Student Loans Works

While you’re engaging with your lender or servicer during the repayment period, a separate process can take place behind the scenes among lenders.

Whether you have federal or private student loans, the existing company that owns your loan might sell or transfer your student loans to another lender or servicer. How selling student loans works is essentially how it sounds. The current owner of your loan sells the loan account for the cost of the loan balance, plus an additional fee based on the loan terms.

Lenders sell the student loans they create to get the account off of its balance sheet and to increase their liquidity. Since the loan is sold at a premium, the original lender uses that money to create more loans for new borrowers.

Your Loan Servicer After a Student Loan Transfer

The new company that purchased your loan might technically be your lender and loan servicer; in this case, you’d make payments directly to your new lender.

Conversely, your new lender might have purchased your loan, but hired a third-party company to service the loan. In this scenario, you’d send your monthly payments to the third-party servicer that’s partnering with the loan company.

What to Do If Your Student Loan Is Transferred to Another Company

Transferring lenders shouldn’t greatly impact you or the terms of your loan. During the time leading up to the official transfer date and shortly afterward, however, you can protect yourself with a few simple steps.

Expect an Alert From the Company

Your current loan company should communicate the student loan transfer in advance. Typically, you’ll receive an email or mailed letter which details the new company’s name and contact information, transfer date, and possibly payment instructions for your repayment plan.

During this preliminary period, continue making payments based on your usual due date. If you just stop paying your student loan, you risk incurring late payments or delinquency.

Make Sure It Is Not a Scam

When public announcements about student loan transfers are released, scammers might take advantage of unsuspecting borrowers by posing as their new lender or servicer.

For example, you might receive an unsolicited phone call from a scammer alleging that they need your credit card number to set up your student loan account for auto-pay.

The best way to avoid scams for student loans during a transfer is by confirming the new company’s name and contact information directly with your original lender.

Contact New Company

Once you’ve confirmed who’s taking over your student loans, reach out to the new company to ask how you should make payments once your loan is transferred to its system.

After the transfer takes place, create an online account through the company’s website to access your student loan details. From there, make sure your payment information is correct and that you’ve enrolled in automatic payments, if desired. Upon creating your account, double-check that the loan data the company received matches your records.

This includes your remaining loan amount balance, interest rate, term, and repayment plan. If anything is incorrect, contact your servicer immediately to correct the issue.

Can I Refinance My Student Loans If They Are Transferred?

If your student loan was sold and you are dissatisfied with your experience with the new company, refinancing can be an option.

Refinancing student loans lets you transfer your student loan to another lender. The difference with this type of transfer is that it creates an entirely new loan in place of your old one. With a new refinance lender, your loan details, such as interest rate and terms, will change.

No two lenders have the exact same refinance student loan offer. Borrowers with a strong credit profile and low debt-to-income ratio, however, can qualify for the most competitive interest rates.

If you choose to refinance your federal student loans with a private lender, you will lose access to certain federal benefits, such as student loan forgiveness and income-driven repayment plans. If you are currently using these benefits or plan to in the future, it is not recommended to refinance your student loans.

Refinancing Your Student Loans With SoFi

Selling student loans is ultimately one way in which financial institutions can secure enough liquidity to create new loans for students. Although you don’t have control over whether your loan is sold or not, it doesn’t affect the fine details of your student loan debt. You’ll still owe the amount that’s unpaid for the duration of your term and be charged the same rate.

You do, however, have the option to refinance your student loans with a new loan and new lender. If you do choose to refinance, consider SoFi. Refinancing with SoFi lets you access low rates and it only takes two minutes to see if you prequalify.

FAQ

What happens when your student loan gets sold?

If your loan was sold to another company, your original loan’s unpaid balance, interest rate, and repayment terms remain the same. You’ll need to direct your payments to the new company if it’s also servicing your loan. If the new company purchased your loan, but is not servicing it, reach out to them to confirm where your payments should be sent.

What happens when student loans are transferred?

Your student loan details, including your outstanding balance, interest rate, and repayment period, won’t change during a student loan transfer. Before the transfer takes place, you’ll receive a notice from your lender or servicer. Once the transfer is complete, check your loan details to ensure it’s accurate, and confirm where to send future payments so they arrive on time.

Can a student loan be sold to a collections agency?

Yes. Student loans that are in default — meaning the borrower has stopped making payments for an extended period — can be sold to a collections agency. The collection agency will take every legal measure to collect the unpaid debt, including suing you in court.

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SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

Student loan debt is at an all-time high, with more students graduating with debt than ever before. Consider this: Almost 44 million borrowers have federal student loan debt and they owe, on average, $37,338. As recent graduates begin their careers, it can be overwhelming to figure out how to make monthly student loan payments.

Ignoring your payments may seem like an easy way out, but student loan default can have extreme consequences. If you’re struggling with student loan payments or are already in default, there are ways to recover. For instance, you could consolidate defaulted student loans. Refinancing defaulted student loans may also be an option. This guide will help you figure out your best option.

What Is Student Loan Default?

If your student loan is in default, it means you have failed to make payments on your student loans for several months in a row. However, there are a few steps that occur before defaulting on student loans.

Federal student loans are considered delinquent once you miss a student loan payment. After 90 days of delinquency, your loan servicer can report the missed payments to the three major credit bureaus. Generally, after 270 days of nonpayment, your loan will go into default.

If you have private student loans, they can go into default even sooner. Typically, after you miss three payments or 120 days, your private student loans go into default. Different lenders have different terms when it comes to default, however, so be sure to check with yours to get the specifics.


💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

How Common Is Defaulting on Student Loans?

Defaulting on student loans is fairly common. The latest data from EducationData.org finds that one in 10 student loan borrowers has defaulted on a loan. In fact, roughly 4 million student loans go into default every year, and about 7% of loans are in default at any given time. As of 2021, the median loan balance among delinquent and defaulted borrowers was $15,307.

What Are the Consequences of Student Loan Default?

Defaulting on your student loans can have some steep consequences. For starters, the entire balance of your student loans could become due in full.

If you default on your student loans, your lender may eventually turn your debt over to a collection agency who will usually start calling, emailing, and even texting you to try and collect on your debt. You may even have to pay collection fees on top of everything else.

If you default, you may lose eligibility for programs that could help you manage your debt, such as deferment, forbearance, or Public Service Loan Forgiveness.

Once your student loans are in default, your loan servicer or collection agency will report your default to the three major credit bureaus, which will negatively impact your credit score.

And if your servicer can’t collect the money you owe on your federal student loans, they can ask the federal government to garnish a portion of your wages or your tax refund.

How Can You Recover From Student Loan Default?

If you failed to make payments on your student loans and they’ve gone into default, you don’t have to let it ruin your financial future. Here are some steps you can take to get back on track.

Loan Rehabilitation

One option for getting out of student loan default is student loan rehabilitation. To rehabilitate your loan, you work with your loan servicer and agree in writing to make nine reasonable and affordable monthly payments over a period of 10 months.

In order to rehabilitate a Direct Loan or FFEL program loan, your monthly payments must be no more than 20 days late. Your loan servicer will determine the new monthly payment, which is 15% of your discretionary income.

When you have successfully rehabilitated your loan, the default may be wiped from your credit history. Note that any late payments reported to the credit bureaus before the loan went into default will remain on your credit reports.

Private student loans are not eligible for rehabilitation.

Consumer Credit Counseling Services (CCCS)

Credit Consumer Counseling Services (CCCS) are typically nonprofit organizations that offer free or low-cost counseling, education, and debt repayment services to help people regain control of their finances and make a plan to get out of debt.

If you’ve defaulted on your student loans, a credit counselor can help by analyzing your financial situation and student debt, laying out all the options for student loan debt relief, and helping you choose the best path forward.

CCCS agencies can also help you set up a budget and manage other debts. In some cases, they will work with your creditors to come up with payment plans where creditors agree that they will not pursue collection efforts or charge late fees while on the plan.

One word of caution: Credit counseling agencies are not the same thing as debt settlement companies, which are profit-driven businesses that often charge steep fees for results that are rarely guaranteed. Even if they are successful in reducing your debt, their fees (plus the unpaid interest and late payment charges on the debt) can add to what you initially owed, reducing your actual savings.

To ensure you find a reputable credit counselor, you might start your search using the U.S. Department of Justice’s list of approved credit counseling agencies.

Repaying Your Loan in Full

Another option to get out from under the shadow of student loan default is to repay your loans in full. Of course, if you had the funds to do so, you probably wouldn’t have defaulted in the first place. That said, you could look into ways to cover the balance due, such as borrowing from a family member or close friend.

Options for Private Student Loans

If you have private student loans that are in default, you can contact your lender and see what possibilities are available. Some lenders may have hardship options similar to the federal programs. As mentioned, the time it will take for your unpaid private loan to go into default depends on the lender — but the timeframe could be relatively short, even just 120 days.

However, if you’ve only recently missed a payment, you can start making payments again (and repay the missed payment) to try to prevent your loan from going into default.

Is Refinancing an Option for Defaulted Student Loans?

If your student loans are currently in default, refinancing your loans can be difficult. When you refinance your student loans, you take out a new loan with a private lender to pay off the existing loans. When you apply for a refinancing loan, lenders will use your credit score and financial history, among a few other factors, to determine if you qualify.

If your loan is already in default, your credit score has likely decreased significantly and will likely impact your ability to get approved for a new loan. If you have a family member or friend who is willing to cosign the loan, however, you may be able to refinance your student loans that way.

Another possibility for refinancing your student loans would be to rehabilitate your loans first. A lot of lenders might turn you down for having a defaulted loan on your credit history, but others might be willing to look past that and onto your education and income potential to approve you for a loan.

💡 Quick Tip: When refinancing a student loan, you may shorten or extend the loan term. Shortening your loan term may result in higher monthly payments but significantly less total interest paid. A longer loan term typically results in lower monthly payments but more total interest paid.

Can you Consolidate Defaulted Student Loans?

Another way to recover from student loan default is to consolidate your student loans in default. If you have federal loans, you can pursue defaulted student loan consolidation with the Direct Consolidation Loan program. This program allows you to combine one or more federal loans into a new consolidation loan.

To be eligible, you must either make three full, on-time, and consecutive payments on the defaulted loan or agree to make payments on an income-driven repayment plan.

Private student loans aren’t eligible for Direct Consolidation Loans. However, you can consolidate these loans with a private lender by refinancing.

Tips for Consolidating Defaulted Student Loans

Wondering how to consolidate defaulted student loans? To consolidate federal student loans, first gather all the documents you need. This includes your personal information such as your name, address, email, Social Security number, and FSA ID; financial information such as your income; and details about your loans, including amounts, account numbers, and loan servicers.

Next, go to studentaid.gov to fill out the Direct Consolidation Loan application. You’ll need your FSA ID to log in. Specify the loans you want to consolidate.

Then, choose one of the income-driven repayment plans if that’s the option you prefer. Review the plans in advance to determine which one is the best option for you.

Filling out the application typically takes less than 30 minutes.

Pros and Cons of Student Loan Consolidation

Choosing to consolidate defaulted student loans has advantages and disadvantages you’ll want to weigh before you move forward.

Advantages include:

•   One loan and one monthly bill. This means there will be less for you to keep track of.

•   Lower payments. When you consolidate, you can choose an income-driven repayment plan or to lengthen the term of your loan, which could lower your monthly payments. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.)

•   Fixed interest rate. You’ll get a fixed interest rate for the life of your loans with Direct Loan Consolidation. The new rate is a weighted average of all your federal loan rates, rounded to the nearest eighth of a percent.

•   Access to forgiveness programs. With a Direct Consolidation Loan, you might be able to get access to programs you weren’t eligible for previously, such as Public Service Loan Forgiveness.

Disadvantages include:

•   Longer repayment period. You could end up repaying your loans for an extra year or two, which will cost you more overall.

•   Pay more in interest over the life of the loan. With consolidation, the outstanding interest on your loans is added to the principal balance, and interest may accrue on that higher balance.

•   Possible loss of benefits. Consolidating loans other than Direct loans could mean giving up perks you have with those loans, such as rebates or interest rate discounts.

This comparison chart of the pros and cons of student loan consolidation can be helpful as you consider the question of should you refinance or consolidate your loans.

How to Manage Student Loans Without Going Into Default

If you’re struggling to make student loan payments but haven’t yet defaulted on your loan, taking action now could help prevent financial issues in the future. Here are some options that could help you take control of your student loan debt and avoid going into default.

Take Advantage of the Temporary Grace Period

Federal student loan payments and interest accrual has been paused since March 2022 in order to alleviate some of the financial challenges created by the coronavirus pandemic. However, the latest debt ceiling bill officially ended the payment pause, requiring interest to begin accruing again on Sept. 1. and payments to resume on October 1.

The Department of Education understands that restarting student loan payments after such a long pause will put many borrowers in a difficult financial position. So to prevent struggling borrowers from facing the harsh penalties of defaulting on their loans, there will be a 12-month ramp-up period to help borrowers adjust to repayment.

During this period, which takes place from Oct. 1, 2023 to Sept. 30, 2024, federal student loan borrowers who don’t make their payments on time and in full will not be reported to the credit bureaus, have their loans placed in default, or be referred to debt collectors.

Forbearance or Deferment

If you’re unable to make payments on your student loans due to a sudden and temporary economic change, you might consider applying for student loan deferment or forbearance. Both allow you to temporarily pause your loan payments.

If your loans are in forbearance, which is granted for 12 months at a time, you will be responsible for paying accrued interest during the forbearance period. If your loans are placed in deferment, which can last up to three years, you may not be responsible for accrued interest during the deferment period, depending on the type of loan you hold.

While your loans are in deferment or forbearance, you do have the option to make interest-only payments on the loan. If you choose not to, the accrued interest on most loans will be capitalized, or added to the principal balance. You’ll then be charged interest based on the larger loan amount.

Applying for Income-Driven Repayment (IDR)

Another option to help manage your student loans is income-driven repayment. There are four income-driven repayment plans available to federal student loan borrowers. Depending on the type of plan you qualify for, your monthly payments will be anywhere from 10% to 20% of your discretionary income. (Beginning in July 2024, the new SAVE plan will adjust payments to 5% of discretionary income.)

Income-driven repayment plans also stretch out the repayment term of the loan to either 20 or 25 years, depending on the specific plan. This means that while you could pay less per month, income-driven repayment could cost you more in interest over the life of the loan. The good news is that if you have any remaining debt at the end of the term, it will be forgiven (but you may need to pay income taxes on the canceled amount).

Consolidating Your Loans

Even if you’re not in default, you can consolidate your federal loans through the Direct Loan Consolidation program. As mentioned, the new interest rate will be the weighted average of the existing loans, rounded to the nearest eighth of a percent. So you won’t lower your effective interest rate, but you’ll only have to keep track of one monthly payment.

Refinancing Your Loans

If your monthly student loan payments are difficult for you to manage, you could consider refinancing with a private lender. If you have a combination of private and federal student loans, you could refinance both types into a single, private loan.

Refinancing can give you an opportunity to qualify for a lower interest rate or lower monthly payments, and you’ll only have to worry about tracking one payment each month. You may also be able to customize your repayment term — either lengthening or shortening the term.

By lengthening the term, you could reduce your monthly payments, but you may end up spending more money in interest over the life of the loan. To see how refinancing could impact your student loans, plug your numbers into this student loan refinance calculator.

It’s important to note that if you’re thinking of taking advantage of any federal programs such as income-driven repayment or Public Service Loan Forgiveness, refinancing may not be a good idea, as you’ll lose your eligibility for these programs.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

Does consolidating student loans remove default?

No. When you consolidate your student loans, the record of the default will stay on your credit history. Another option is loan rehabilitation, which removes the default from your credit history.

Can you consolidate defaulted student loans?

Yes, you can consolidate defaulted student loans. If you have federal loans, you can consolidate them with Direct Loan Consolidation. To be eligible, you must either make three full, on-time, and consecutive payments on the defaulted loan or agree to make payments on an income-driven repayment plan. You can fill out an application at studentaid.gov. You can consolidate private student loans with a private lender.

Can you refinance student loans that are in default?

You can refinance student loans that are in default, but it may be difficult. That’s because your credit score has likely decreased, which may impact your ability to get approved for refinancing. If you have a family member or friend who is willing to cosign the loan, you may be able to refinance your student loans that way. Or, you could rehabilitate your loans first, which could help improve your odds of being approved for refinancing.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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