What happens to your student loan if you transfer schools?

Changing colleges could affect your financial aid if you’re receiving federal or private student loans. (iStock)

Transferring colleges can make sense for different reasons. For example, you may decide you want to pursue a different course of study or find that another school offers more affordable tuition. Or you may simply prefer to be closer to family and friends if you've been attending school away from home.

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If you've received federal student loans or private student loans to help pay for college, there are a few things to know about making sure you can still receive financial aid at your new school.

1. You may need to resubmit your FAFSA

The Free Application for Federal Student Aid (or FAFSA) is what's used to determine your eligibility to receive federal student loans. If you've previously completed the FAFSA, then decide to change schools mid-year you'll need to ensure that your new school has your information.

The good news is you don't have to fill out a new form to apply for student loans again. You can simply log on to your account through the Department of Education's website, update your school information and resubmit your FAFSA.

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"The new school will determine the student's eligibility for Federal Direct Student Loans from their cost of attendance and the student's expected family contribution," said Catherine Graham, founder and CEO of The Financial Aid Shop.

Transferring mid-year shouldn't affect your financial aid eligibility but any aid paid to your previous school will count toward your annual loan limits. If you're planning to make the switch to a new school once the academic year ends, you'd just include your new school's information when filling out a new FAFSA.

2. Your financial aid package may be less

If you have student loans transferring college credits to a new school doesn't mean they automatically go with you. Your new school will determine how much financial aid to award you and it could be less than what you received at your old school.

There are different reasons for this. For instance, your financial aid package could shrink if your total cost of attendance is lower at the new school. It's also possible that your school may have less financial aid to go around if awards are offered on a first-come, first-served basis and you're transferring mid-year.

If you're receiving less aid in the form of federal student loans, grants or scholarships, you may need to explore private student loans to fill the gap. Private loans can offer fixed or variable interest rates, so it's important to compare borrowing options with a tool like Credible before applying.

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3. Private student loans don’t transfer either

If you have existing private student loans, it's important to remember that they're like federal student loans: transferring college enrollment won't transplant those loans.

You'll need to connect with your private student loan lender or servicer to see if it's possible to cancel the disbursement of your loans to your previous school. If that's not possible, you could also look into having your loan amount reduced to cover only the cost of attendance at your previous school.

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The next step may be applying for new private student loans to cover tuition, fees and other costs at your new school. Again, it can be helpful to use a tool like Credible to compare what rates you may qualify for, based on your credit score.

4. Don’t forget about existing loans

Changing schools and getting your new student loan situation sorted can take time but don't let your existing loans get lost in the shuffle. With both federal student loans and private student loans, it's important to understand how your grace period works and when you may be expected to begin making payments toward those loans.

"Once a student ceases to be enrolled at least half-time, the six-month grace period will begin," Graham said.

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But if you're going to be enrolled at least half-time at your new school, you should be eligible for a deferment of federal student loans. You'll still need to talk to your private student loan servicer or lender to learn what options you have for existing loans.

Running the numbers through an online student loan calculator, like on Credible, can help you better estimate what your monthly obligations may be for student loans when transferring colleges. If you do have to begin making payments while in school, this can make budgeting for those payments each month easier. The most important thing, Graham said, is to stay in touch with your school and lender or loan servicer throughout the transfer process.

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