Why is both my old loan and refinanced loan on my credit report?

Michael Lux Blog, Student Loans 0 Comments

This week we received an email from Nick who had an interesting question.  He recently refinanced his student debt, but his old student loan still appeared on his credit report as did the new loan.  He also made a couple really smart moves that many other borrowers could benefit from.

Nick writes:

What benefit would Mohela/SOFi receive for keeping my formerly refinanced loan active on my credit report?  I refinanced from Mohela/Sofi to Earnest in May 2016.  I randomly checked a credit report that showed both loans as “active” despite the Mohela/Sofi loan being paid in full.  A letter to the credit department at Mohela quickly moved the loan to “paid”.

The Basics

When you refinance your student loans, the new lender, in Nick’s case Earnest, pays off the old loan with the old lender, in this case SoFi.  Based on Nick’s email it sounds like both loan still appear on his credit report, essentially showing double the student loan debt.

What is happening?

In most cases, the two loans both showing up on the credit report is normal.  Lenders do their monthly reporting a different times, so it is perfectly reasonable to see both loans on a credit report done close in time to the consolidation.

Additionally, there is also a slight delay that should be expected.  The new lender will want the loan to appear on the credit report as soon as the check is issued.  The old lender will keep the old loan on the credit report until the check is mailed and processed.  This processing time could also explain many occurrences for both loans to appear on the credit report.

A Long Delay

What makes Nick’s case very unique is that both loans appeared on his credit report for over 6 months.  This should never be a part of the process.  Given how quickly the error was resolved, it sounds like Mohela was able to recognize the issue and get it fixed.

As far as finding a motive for Mohela to keep the loan active, we can’t think of one.  The debt has clearly been paid in full and it sounds like all parties agree.  Mohela has no financial incentive to have a loan appear on the credit report if they know the loan has been paid in full.

Nick’s Smart Moves

Based on Nick’s email, there are a couple really smart decisions he made.

First, he was savvy enough to refinance a refinanced loan.  Unlike refinancing a house, there is no cost to refinancing a student loan.  In fact, many student loan lenders offer cash for new customers.  Even though he already refinanced his student loans, Nick kept a close eye on his finances and the market, and when the opportunity came to make things even better, he pounced.

Second, Nick was watching his credit report.  By identifying the error relatively quickly in time he was able to send one quick letter and get his problem addressed.  Had he done so years later, this situation could have been much more difficult.  By law, everyone gets to see their credit report once a year, but people can pay for extra reports.  We recommend checking your credit report at least once a year.  Nick’s situation is a good example of why it is important.