What You Need to Know About Transferring Mid-Year If You Have Student Loans
What Happens to Student Loans When You Transfer?
Many federal and private student loans offer automatic in-school deferment — meaning you don't have to pay your loans while you're enrolled in school at least half-time. Transferring could affect your in-school deferment because you are technically leaving school when your enrollment ends at the first institution. Any gap in enrollment could lead to your loans going into their grace period — the time frame students have before they must start paying their loans, typically six months.
"For there to be no lapse in a student's deferment status, a student must re-enroll at their new school within six months of ceasing to be at least a half-time student (withdrawing) at the prior institution and not have already used that six month grace period," says Amanda Foskett, assistant director of Financial Aid and Student Services at Antioch University New England in Keene, New Hampshire.
Foskett notes that if the student meets these two requirements and is at least a half-time student at the new school, most schools will automatically report a student's enrollment status to the clearinghouse that lenders check regularly. Through this process the deferment status is automatically updated and there will be no lapse. It's always a good idea to double check your enrollment status with your student loan lender as well.
Settle Things with the Original School First
If you plan on transferring to a new school mid-year, you will need to take care of some things at the first institution so there is an easy transition with your student loans.
"The first step for any type of loan is for the student to notify his or her current school that he or she will not be returning," says Foskett. "From there, a number of things should likely happen:
- Future loan disbursements should be canceled
- Registrations for any future coursework should be dropped
- Any billing issues should be resolved and
- Official transcripts should be requested."
Foskett explains that some schools will automatically handle this once they learn a student will not be returning. Other schools may give students a checklist and they will have to take care of these items themselves.
Additionally, students with private student loans will also need to contact their lender to decrease their loan amount. They will have to apply for another private student loan if they need one for their new school.
Apply for a New Loan at Your New School
If you have federal Direct Subsidized or Unsubsidized Loans, you may only need to update your Free Application for Federal Student Aid (FAFSA) with the new Federal School Code. From there, the new school receives the updated FAFSA and awards aid accordingly. Keep in mind you may not receive the same financial aid award at your new school.
"There is always a chance that FAFSA transactions are selected for a process called verification," Foskett says, "so there is a possibility the student will have to provide additional information before federal aid can be awarded.
The verification process can differ among schools, but it typically involves sending documentation to double-check tax and income information. The school also has the option to require additional information they deem necessary to verify any apparent discrepancies.
Students should be aware that even if they have undergone a verification process with the original loan, they may have to do it again for the new loan.
For federal Direct PLUS Loans for parents and graduate students, Foskett says students may need to submit a new application and credit check to studentloans.gov for the new school to process the loan. This is especially true if the original credit check has expired.
And, finally, Foskett says that students with private loans need to contact the lender to make sure future disbursements to their original school are canceled. They can then apply for a new loan, and if approved, the new school will certify and disburse the loan according to the new school's schedule.
Check to See if the Multiple Disbursement Rule Applies
Foskett notes that some schools disburse federal loans in at least two payments for the term with the second disbursement being made after the midpoint of the term. This rule applies only to federal student aid, but you should also check with your school about your private loan disbursements.
"When a student transfers mid-year and attends an institution for one semester only, sometimes this multiple disbursement rule still applies," says Foskett. "This means that a federal loan must disburse in two portions during the one semester."
If a student only attends a school for the spring semester, having just transferred, Foskett says that half of the federal loan may be disbursed in the beginning of the semester while the other half is disbursed mid-semester to fulfill the multiple disbursement requirement.
When it comes to tuition payments, she explains that this won't affect most students because the majority of institutions consider the tuition bill to be paid as soon as a disbursement hits the student's account, even if it's only a partial disbursement.
However, if the student is expecting a refund as a result of the disbursement to help with books and living expenses, then the refund could be held up until the loan is fully disbursed.
Foskett uses the example of a student who only needs $5,000 to cover direct expenses (i.e., tuition) at the new school but takes out a loan of $7,000 to help pay for books and room and board. This would result in a negative balance, or credit, and the student would receive a $2,000 refund.
Many students choose this option so they can afford to attend school, Foskett says. If there's any delay in that refund due to the multiple disbursement rule, then the student may not be able to pay for their living expenses.
If this might be the case for you, Foskett suggests contacting the financial aid office and asking how the federal loan is being disbursed and when to expect the refund. Each institution may do things differently so make sure to get the information as soon as possible.
Students who decide to transfer schools mid-year will need to take care of a few things for your federal and private student loans. Fortunately, the process isn't difficult and much of it is streamlined by the schools themselves. If you have questions, make sure to contact your school's financial aid office and your student loan lenders for help.