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What Happens When A Loan is Referred to a Servicer or Secondary Market?
Sometimes a bank or lender will sell education loans to secondary markets. A secondary market is usually a larger bank or business that buys loans from other lenders on a large scale. This makes it easier for the smaller banks to have funds available for students and parents who want to take out new loans for commercial or other reasons. The lenders can then focus on providing efficient application turn around, loan disbursements, and in-school deferment processing. This process is usually seamless and causes no disruption to the borrower.
Some lenders will not sell the loan, but keep it for the duration of the ten-year period and service the loan themselves. Others will keep the loan as long as it is in the grace period, where the government pays the interest, then sell it to a secondary market. Still others that may not have the capabilities or personnel to do the reporting and keep up with the required regulations, but want to make the service available to their community, will give you their lender code to put on your application. The loan is then referred (or serviced) immediately by another lending institution.
Whatever your lender does with your loan, remember to stay with your original lender and use their lender code for future loans. Generally if your lender sells loans, they will sell it to the same secondary market. If you want to be sure, call your original lender and ask them if they are selling to the same servicer before you use their lender code. If they are selling to a different servicer than when you took out your first loan(s), find out who currently holds your loans and use that lender for future loans.
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