Q&A: Student loans sold to Department of Education

Q: I learned recently that my federal student loan, which I received through a private lender, has been sold to the Department of Education. Why did this happen, and how does it affect the servicing and status of the loan?

A: In May 2008, the Department of Education (DOE) initiated a program where private lenders were allowed to disburse federal student loans and then sell the loans to the DOE. This was part of a two-year transition from disbursing and servicing loans through private lenders to disbursing them through the DOE. These purchased loans were called "put" loans. Loans disbursed prior to May 2008 were not eligible for the put program. Starting in July 2010, all new federal Stafford and Grad PLUS disbursements will be handled through the Direct Loan Program administered by the DOE.

In 2008 and 2009, a company called ACS contracted with the DOE to service the put loans. In August 2009, the DOE awarded servicing contracts to four different companies; Sallie Mae, Nelnet, Great Lakes, and the Pennsylvania Higher Education Assistance Authority (PHEAA). This change in vendors most likely has, or will, affect where your DOE loans are serviced.

Having another servicer for your student loans might make consolidation more attractive. By doing so, you can reduce the number of servicers and monthly payments down to one.

Send your money management questions to medec@advanstar.com (please include your regular postal address). Answer provided by Tom Hanser, owner, Hanser Consulting, Madison, Wisconsin.