02.08.08 | Do Stafford student loans need to be paid back if a company goes out of business?
A question recently came up on the blog – if a student loan company goes out of business, do the loans need to be repaid?
The answer is an unequivocal yes. Except for a few rare circumstances (such as a loan being fraudulently issued) borrowers are always obligated to repay the loan.
More often than not, if a student loan lender goes out of business, the loans are sold as part of the company’s liquidation. They’re treated just like office furniture or any other tangible asset, and buyers will buy the loans (and the potted plants and desks). The borrower will receive notification that their Stafford loan has been sold or transferred to a new company, and that they must now make payments potentially to a new address.
That’s one of the many reasons why it’s important to stay in touch with your lender and keep them updated on your address and contact information – otherwise, you could potentially go into default on your federal student loans and not even know it.
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In 1979, when I was beginning college, the prime interest rate was 11.5 percent and student loans were at 3.4 percent — or 70 percent below prime. Now, the prime rate is 5.25 percent yet student loans are 8.5 percent (and adjustable) — or 57 percent above prime. What is going on?
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