Student loan surprise!
January 9, 2011 7:24 PM   Subscribe

Suddenly my loans are being serviced by nelnet even though I consolidated with the Department of Education. I have been able to vaguely gather that this was enacted along with the new student loan provisions, presumably to not completely drive companies like nelnet and sallie mae out of business. I have a few questions related to this which I have not been able to solve in my research. The first is, what is the specific act and section that this fell under? (More inside)...

I have a few questions and due to my desire to not discuss my finances on the internet have chosen to make this anonymous.

A throwaway email for this:

My questions are as follows:

1) What provision or section of the law gave Nelnet the ability to service my loans without my permission?

2) Is there a specific system of rules that the Department of Education has to follow in this case when giving a lender the authority to service loans?

3) Is the option to have the Department of Education service loans still available?

4) Are there rules that the Department of Education has to follow to ensure that federal contracts go to companies that do not have a history of fraud?

5) Any other related questions you think may help to illuminate what happened to my loans, under what authority it happened and what rules the government must follow to ensure they are serviced correctly would be much appreciated.

A little background information:

I had a >$20,000 undergraduate loan that was consolidated with Direct Loans. I added about 30,000 from graduate school with Nelnet. Suddenly, within the last month and half, my consolidated loan was transferred to Nelnet with no notice or information being sent to me in the mail or via email. IANAL, nor are you my lawyer.
posted by anonymous to Law & Government (1 answer total) 1 user marked this as a favorite
I don't have any experience with student loans specifically (I paid for everything out of pocket and now my company reimburses me) but from what I understand about loans and mortgages, it's entirely common for large bundles of debt to be resold to others. Why? Because then that lender now has more money to lend to others.

Thankfully, Google can point us in the right direction:
Why was my loan(s) sold?

The sale of student loans is a standard business practice, so it's not unusual and has nothing specifically to do with you, your school or your loan. Loans are sold to free up a lender's capital so the lender can make additional loans. In 2008, Congress passed and the President signed the "Ensuring Continuing Access to Student Loans Act of 2008". This legislation authorized the U.S. Department of Education to purchase loans directly from lenders, thus ensuring money was available to make additional student loans.

Why wasn't I notified that my loan was sold?

The Department of Education Student Loan Servicing Center mailed you a letter with information about the sale. Your prior lender may have also sent you a letter. If you did not receive the letter or have additional questions, please contact our servicing center at 800-508-1378 or register on our website at
In this case, it looks like the answers to your questions are as follows:
  1. Most recently, it looks like the Ensuring Continued Access to Student Loans Act of 2008
  2. Certainly looks like it, I found all sorts of articles about review by the DoEd and Inspector General and other things
  3. You'd have to convince the DoE that they should not loan other current students money and instead use some of the money they have to buy back your loan
  4. There are and I did read about the fraud allegations and allegation of use of a federal tax loop hole
  5. As long as your interest doesn't go up and they don't fraudulently claim that you aren't paying your loans when you are, I fail to see what problems this could cause you aside from "now I'm doing business with a company I didn't plan on doing business with but cannot complain because the papers I signed* said my loan could be sold"
* Please note, we don't know what papers you signed when you took out these loans, but those would be the first things I'd look at, not some random advice site on the internet. However, Wikipedia does say this about the sale of federal loans:
PUT Loans were created in order to ensure the availability of loan funds for U.S. borrowers, President Bush signed the Ensuring Continued Access to Student Loan Act of 2008 (ECASLA) into law on May 7, 2008. One of the programs created under this law enabled lenders to sell loans to the Department of Education (ED) so that the lender would have funds to provide loans to other borrowers.

The sale of federal loans is very common, and by signing the Master Promissory Note (MPN), the borrower authorizes the potential sale of his or her loan to another entity. In this case, the loan was sold or “PUT,” as it is generally called, to ED.
If a borrower’s loan(s) are sold, the terms of the loan will remain the same, and the loan continues to be a part of the Federal Family Education Loan Program (FFELP).
So from that I can gather without actually reading any of the documents you have on this matter, you loan was sold so the DoEd could put more people through college.
posted by Brian Puccio at 8:16 PM on January 9, 2011 [1 favorite]

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