If your federal student loan balance mysteriously dropped to a $0 balance, it might seem like a dream come true.
Was there student loan forgiveness or cancellation? Did someone else pay off my debt for me? Was there a lender error that means I’m debt-free?
There are several reasonable explanations for the zero-dollar balance. In some cases, a borrower truly is free of their debt. In others, the debt moved.
Borrower Alert: In the coming months, many borrowers are going to see balances drop to zero.
Many federal student loans earned forgiveness due to a new federal policy.
Unfortunately, the most common explanation is that the loans moved to a new servicer. A couple of major servicers are leaving the business by 2022.
The Disappointing Reason Your Federal Student Loan Account has a Zero Balance
Unless you have paid off your entire balance or earned forgiveness, there is one explanation that will apply to the majority of borrowers: Your loan got transferred to a new servicer.
Unfortuantely, this is a pretty common occurrence. The federal government has contracts with several different loan servicers. Sometimes these contracts are renewed; other times, a new company gets the contract.
In some cases, only certain loans get moved. Thus, it is possible your balance dropped significantly but didn’t go all the way to zero.
Sherpa Thought: These transfers shouldn’t be so confusing for borrowers. If servicers or the Department of Education did a better job notifying borrowers, people wouldn’t be surprised to see a $0 balance.
Tracking Down Transferred Loans and New Servicers
To the credit of the Department of Education, they do a nice job helping borrowers track down the appropriate servicer.
Within the studentaid.gov website, there is a database of student loans that borrowers can access. Within this database is a breakdown of every loan and the company responsible for servicing the loan.
If I saw an unexpected drop in my federal student loan balance, studentaid.gov would be my first stop. Because navigating to individual loan information is a bit complicated, I’ve put together this guide on accessing the records.
The Public Service Loan Forgiveness Waiver
If you previously applied for Public Service Loan Forgiveness, your loans may be forgiven.
On October 6, 2021, President Biden announced that the Public Service Loan Forgiveness rules were temporarily changed. Previous payments that didn’t count because the borrower was on the wrong repayment plan or the loans were not eligible may now count.
If you have previously applied for Public Service Loan Forgiveness or completed an Employer Certification Form, the Department of Education may have reconsidered your application.
This article breaks down the new program and rules in more detail.
Other Possibilities for a Federal Student Loan Balance Drop
A balance transfer or PSLF may be the most likely explanation, but other possibilities exist.
For example, President Biden recently announced plans to cancel $1 billion worth of student loans for borrowers defrauded by their schools. This is a continuation of an Obama-era program that was significantly limited during the Trump years.
However, it is worth noting that the borrower defense to repayment cancellation only happens to borrowers who successfully apply to have their loans canceled.
Another slight possibility is if Congress or the President chose to cancel large amounts of student debt for all borrowers. As of the date of this article, no such plans exist. Even though there is some support for massive forgiveness, it is far from a certainty. Additionally, if something like that did happen, it would be all over the news.
Preventing the Transfer to Another Servicer
Federal servicer transfers can be a significant issue for borrowers. And the problems go beyond the disappointment of learning a zero-dollar federal student loan balance just means the debt has moved.
A change in servicers can have many negative issues for borrowers:
- Payments may be missed due to auto-debit issues.
- Frequent servicer changes open the door to fraud.
- Payments may be missed because banks mailed checks to old servicers.
- Important records and communications may get lost.
Worst of all, borrowers have very little power to prevent a servicer change. If your student loans are on the move, take these steps to streamline the process and avoid issues.