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Should I Notify Lender of Graduation?

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Long-time reader Geoff asked the following question:

My wife finished her grad school a year ago and got a job as a teacher. This summer, she’s been taking college courses in order to boost up her pay. We just received an email from Sallie Mae (her student loan provider) that they have automatically put her loans into deferment until 2012 due to her
enrollment activity. I’m assuming that the colleges she’s taking courses from somehow communicate with Sallie Mae and that’s how they found out. Although she is taking 12 credits this summer, it’s only for the summer, and I know a deferment usually applies only if you continue to be in school. Will they automatically know that she is no longer in school in September, and will end the deferment? If not, do we have to notify them? And if we don’t would we be penalized?

The only question I can answer is that the deferment rule is you must be in school at least part-time, as defined by your school. Your school may define 12 credits as part-time, so you’re safe there.

As for automatically knowing, my lender, ACS, uses a central database that is supposed to be updated by the school with my student status. When I took a semester off, that database was updated to reflect that. Now, the loan is still in deferment but I graduated a couple months ago, so my question is the same as Geoff’s – will I be on the hook for the interest? Is it my responsibility to notify the lender? Or will they know later, when the school updates the database?

I tried asking ACS but gave up after thirty minutes on hold, does anyone know how we should be handling this?

Update: I emailed ACS two days ago with this question and here was their replay:

The school is a participant of the National Student Loan Clearinghouse (NSLC) they will report your enrollment status and graduation date to the NSLC, which in turn will forward this information to ACS.

Interest will start to accumulate once the account enters repayment status.

{ 11 comments, please add your thoughts now! }

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11 Responses to “Should I Notify Lender of Graduation?”

  1. betsy says:

    I’ve taken classes part time and I always get a deferrment that says it’s for four years but when a new semester starts and they are informed I’m not enrolled anywhere, I get a notice saying I need to start paying again. Not sure if that is the way it’s supposed to be done, but that’s how it’s always worked for me.

  2. I would just keep paying whatever her montly payment was before she started taking the classes as loans continue to accrue interest even when there’s in-school deferment. Sallie Mae also has a lot of forms on their web site that you can submit without having to go through the phone. Good luck!

  3. Cameron says:

    Here’s my 2 cents. What you’re really asking here (from a lawyer’s perspective) is if your contract imposes an affirmative duty to notify the other party about changes in your status as student.

    If you went to a lawyer and asked them this question, they would ask to see the documents relating to the loan. Your loan agreement is a contract, and so contractually you may have agreed to notify the lender of your status, or maybe you agreed that the lender would be responsible to keep track of that, or maybe something else. There’s no way to know without seeing the contract.

    But in every contract, even when the contract doesn’t say it, you (and the other parties to the contract) have agreed to act in good faith. Does agreeing to act in good faith mean you’ll notify them if you’re no longer student status? Maybe. It certainly might. I’m giving a maybe answer here because that conclusion might vary based on things like which state law applies and who is sitting on a theoretical jury.

    In all likelihood, now that you’ve received an email indicating they’d determine your status from the NSLC, you’re probably in the clear. (Even before that, in my opinion.) But then, my opinion wouldn’t be resolving it if the bank were to ever argue that you breached the agreement, so it couldn’t hurt to send them notice.

    By way of disclaimer, I should mention that none of this should be interpreted as legal advice.

  4. saladdin says:

    I love it when lawyers give legal advice and then put a disclaimer afterwards saying “This is not legal advice.”

    I wonder if doctors do the same thing “Hey Saladdin, I would get that rash checked out if I were you. But don’t take that as medical advice.”

    saladdin

  5. Cameron says:

    Saladdin, I’ll admit, it’s a little silly, but I’m not sure the analogy quite fits. I’m always happy to give the advice (without disclaimer), “you should consult an attorney.” By the same token, I think most doctors would be nervous to prescribe treatment based on a blog entry without seeing the rash.

  6. saladdin says:

    I was just poking fun. Nothing personal. I know you guys like share your legal knowledge and we like to get it for free. With the “sue now” mentality I know you have to cover yourself. I don’t know if Jim does it here but I have seen some personal blogs post disclaimers stating “not to take their posts as financial advice”.

    I’m just waiting for the time when Preachers have to add “These vows should not be interpreted as marriage advice. Your potential marital experience is based on historical data and does not guarante a long, happy marriage.”

    saladdin

  7. ChristianPF says:

    When I was in school I transitioned from full time to part time as I finished my degree and somehow they knew when I did, so like the post mentions I am sure they will let you know…

  8. MFJ says:

    I had a similar situation with my Masters degree where I was in one Masters program and then switched to another. Before I graduated I consolidated my student loans and my wifes student loans into one big loan $50k that was subsidized and deferred until I graduated. Well I graduated with my MBA, but the college still showed me in the old program as well and for whatever reason they never notified the Federal loan program. It was 3 years after I graduated before I finally got the notice that my loans were coming out of deferment. So basically I got about 3.5 years of no payments and no interest on my loans. I believe it is up to the school to notify.

  9. Meg says:

    On a similar note I have always wondered if you are required to let your lender know if you take out a personal home mortgage and later convert your home to a rental property. Many banks charge more for investment mortgages, but would they really make you refinance into another loan if you simply move and rent the place out (especially if you actually did live there for a number of years before moving and converting it)? There’s no way they’d ever really know you moved unless you quit making payments and there was an investigation or inquiry…

  10. CK says:

    To Meg-

    Most mortgages on personal residences exclude rental without the banks consent. You’re right though as long as you keep sending payment checks they’re very unlikely to make a stink about it.

  11. Val says:

    Sallie Mae’s website has nothing I can find for informing them of a change in student status, except that the clearing house notifies them automatically. No forms, etc, unless their search engine just really really sucks. So I’m going to assume they don’t want us to tell them since they can find out on their own.


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