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Sometimes, student loan debt can start to feel like it’s slowing you down. If you’ve spent a significant amount of time with the same lender, you might become frustrated with the loan terms, the loan servicer, or even the lender themself. It might seem like the right time to search for a new lender to take over the loan, so you can transfer your debt to a different creditor.

Student loan transfers are one way to take matters into your own hands, but the process could involve taking out an entirely new loan, moving the balance of the existing loan, consolidating the loan, or refinancing.

Ultimately, it’s up to the borrower to decide what works best by shopping around for a lender with better terms, but being stuck with a student loan that leaves you feeling stonewalled isn’t necessarily the only option.

How Do I Transfer Student Loans to Another Private Lender?

Once a borrower has successfully landed on another lender to take over their student loan, there are several different ways to go about transferring the debt. The transfer process, however, typically starts the same way:

First, the borrower submits an application to the lender and the lender performs a credit check. Then, the lender uses the information on file to decide if they’d like to initiate the transfer. If the borrower’s application is accepted, they’ll agree to the new lender’s terms and fees, create a new account with the lender, and transfer their debt accordingly.

Moving forward, the borrower will work exclusively with the new lender and any servicer associated with them (more on that below) and make payments according to the new loan agreement.

Recommended: How to Find Out Who Your Student Loan Lender Is

Can I Transfer My Sallie Mae Loans to Another Lender?

While Sallie Mae no longer offers consolidation for their private loans, borrowers can still refinance their Sallie Mae loans and other private loans through a private bank or lender. This allows the borrower to change the management of their newly refinanced loan to a different lender and loan servicer.

What’s the Difference between a Lender and a Loan Servicer?

An important distinction to make is the one between a loan lender and a loan servicer:

•   A lender is an institution or company that underwrites the student loan. For instance, federal student loans are underwritten by the U.S. Department of Education. While private student loans are underwritten by a private bank or institution like SoFi.
•   A loan servicer is the company or organization that manages the loan once it’s been disbursed. It acts as a third party between the borrower and the lender and usually processes the payments and handles any customer service issues that may arise. There are a number of loan servicers that work with the federal government to manage federal student loans.

Can I Change My Student Loan Servicer?

Federal student loan borrowers aren’t necessarily able to hand-pick their student loan servicers, since they’re assigned at the time the loan is disbursed. But if they want more control over the process, there are a couple of options they can take before selecting a new student loan lender to ensure they get a servicer who’s a good fit for their future financial goals:

•   Visit the My Federal Student Aid site to find out who their current student loan servicer is.
•   Conduct a credit report check to see who’s managing their existing student loans.
•   Review the Consumer Financial Protection Bureau’s Annual Report on Student Loan Complaints to see which loan servicers are creating obstacles for borrowers and how they responded to borrower complaints when filed.

Although borrowers can’t change their student loan servicers directly, they can do a little legwork and decide if it’s worth it to transfer student loans to another lender.

What about Consolidating My Student Loans?

Borrowers with federal student loans can consolidate them through the Direct Consolidation loan program. Consolidating student loans is a way for borrowers to streamline their student loan payments into a single fedloan payment. Consolidating through a Direct Consolidation Loan allows borrowers to continue to take advantage of federal student loan perks like federal student loan forgiveness and flexible repayment plans. The interest rate on a Direct Consolidation loan is the weighted average of all of the previous loans, so the interest rate won’t be reduced during this process.

While borrowers can’t use a Direct Consolidation Loan to combine federal student loans and private student loans, they can opt to refinance their federal and private loans with a new private lender to capitalize on having a single monthly payment, potentially lower interest, and a shorter timeframe to pay the loan in full. Refinancing federal loans with a private lender eliminates them from borrower protections and programs like Public Service Loan Forgiveness.

Related: Private vs. Federal Student Loans

What About Student Loan Refinancing?

Whether a borrower has federal student loans or private student loans, one way to transfer their student loans is by refinancing with another lender. To initiate this process, the borrower will decide on a new lender who fits their financial goals, take out a new loan in the amount of their existing private or federal student loan, and start making payments to the new lender.

With refinancing, borrowers also sign on with a new servicer, which can be beneficial for those who feel like they’re in a rut with their existing servicer. Additionally, if they consolidate more than one loan in the process, they only have to make one monthly payment moving forward.

Overall, neglecting to explore refinancing options could potentially mean missing out on some unique student loan benefits like lower interest rates, shorter repayment terms, and the flexibility of choosing between variable or fixed-rate loans. For borrowers who have federal loans, however, certain perks—like income-driven repayment plans and student loan forbearance—come off the table when refinancing with a private lender.

SoFi is the leading student loan refinancing provider, with $30 billion+ in refinanced student loans and satisfied customers across the country.

What About Transferring My Student Loan Balance to a Credit Card?

Another option for student loan transfers is for borrowers to move the balance onto a credit card and pay their monthly bills there. Some credit card issuers allow student transfers, but not all.

Generally speaking, this tactic only makes sense if the borrower qualifies for a card with a 0% introductory rate and can pay off the entire balance before that promotional period expires (usually 18-21 months). Otherwise, they could be left paying even more in interest than they would with the original loan.

According to CreditCards.com , the average credit card interest rate as of January 2021 is 16.11%. Compare that to the interest rates on federal student loans which are 2.75% for unsubsidized and subsidized federal student loans for undergraduates, 4.30% for graduate and professional students, and 5.30% for PLUS loans.

As for private student loans , the average interest rate is 6.64% for a 10-year fixed-rate student loan and 4.06% for a 5-year variable-rate student loan. In every one of these interest rate scenarios, student loans interest rates are less than credit cards.

Is It Possible to Transfer Student Loans From Parent to Student?

A Parent PLUS loan is a type of federal student loan for parents paying for children who are enrolled in eligible education programs.

As it stands, no federal loan programs allow parents to transfer their Parent PLUS loans to their children. And transferring the loan, even through a private lender, is not technically doable. That said, some select lenders (like SoFi) allow the student to apply for a refinanced loan and, if approved, use it to pay off the existing Parent PLUS loan.

The Takeaway

Transferring student loans involves finding a new lender (and their associated loan servicer), moving existing student loan debt into an account with their company, and making payments directly to the new lender moving forward.

There are special scenarios where student loan transfers can get a bit more complicated, like for borrowers with Sallie Mae loans, parents who take out Parent PLUS loans and want to transfer the debt back to their children, and borrowers looking to transfer their student loan debt onto a credit card.

Consolidating student loans is a way for borrowers to streamline their student loan debt into a single monthly payment. Those with federal student loans can opt to consolidate through a Direct Consolidation Loan that maintains the many benefits of their federal student loan program—like student loan forgiveness and flexible repayment plans.

Another option for borrowers looking to transfer their student loan debt involves refinancing their loan under a new lender. If they have federal student loans, however, they lose many of the perks that come with the federal student loan program.

Find out if you pre-qualify for student loan refinancing with SoFi.

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SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS, PLEASE BE AWARE THAT THE WHITE HOUSE HAS ANNOUNCED UP TO $20,000 OF STUDENT LOAN FORGIVENESS FOR PELL GRANT RECIPIENTS AND $10,000 FOR QUALIFYING BORROWERS WHOSE STUDENT LOANS ARE FEDERALLY HELD. ADDITIONALLY, THE FEDERAL STUDENT LOAN PAYMENT PAUSE AND INTEREST HOLIDAY HAS BEEN EXTENDED TO DEC. 31, 2022. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE THE AMOUNT OR PORTION OF YOUR FEDERAL STUDENT DEBT THAT YOU REFINANCE WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.

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DeFi, short for decentralized finance, is more than just a popular buzzword in the cryptocurrency sphere. It’s a concept that is disrupting the centralized financial services model, equalizing access and bringing more control to users across the globe.

In this article, we will cover everything a consumer might want to know about DeFi, including:

•   What is DeFi?
•   How does DeFi work?
•   How DeFi is disrupting traditional financial services
•   What’s a DApp?
•   Examples of DeFi DApps

What is DeFi?

DeFi is a blanket term referring to trustless and transparent protocols that don’t require intermediaries to operate. Traditionally, financial services and products have relied on centralized authorities such as banks, financial advisors, and clearinghouses. DeFi has reengineered this power dynamic to provide the same financial services programmatically without a central authority, thus reducing fees and making financial services and products more accessible to more people everywhere.

One way to better understand this concept is to look at the two parts of the term separately.

”De” = Decentralized

DeFi’s “de” stands for “decentralized,” or distributed control. By removing power from the hands of a few central authorities and distributing it across programmatic and autonomous code, DeFi transforms a previously centralized governance model into a decentralized one controlled by no one.

”Fi” = Finance

DeFi’s “Fi” is an abbreviation for “finance”—and more specifically, it refers to financial services. DeFi has disrupted traditional finance by transforming popular and long-standing financial services into decentralized versions without any central authority. DeFi offers an alternative to traditional financial services like the following:

•   Borrowing
•   Lending
•   Investing
•   Trading
•   Saving
•   Insurance
•   Crowdfunding
•   Crowdraising

DeFi has also enabled the creation of new financial products:

•   Cryptographic tokens: There are a number of these digital assets, one of the most common tokens is a “utility token,” which serves a specific function within a digital ecosystem. One example is the Basic Attention Token (BAT), which is used as payment for advertisers, users, and content creators on the Brave browser.

•   Non-Fungible Tokens (NFTs): These tokens transform digital images (for example, works of art, a tweet, a video clip, a GIF) into unique assets that can be traded on a blockchain.

How Does DeFi Work?

With DeFi, services and products are not subject to approval by a small group of decision makers but rather by smart contracts. Like traditional contracts, smart contracts contain information and terms regarding transactions between parties, but they are completely digital. They function like a small computer program stored inside of a distributed ledger known as a blockchain, a permanent and ever-growing record of information and transactions stored in individual blocks.

DeFi shares many aspects with cryptocurrencies, including the following:

Permissionless/Borderless

DeFi applications are permissionless—completely free of charge and available to anyone who wants to use them, the only requirement being an internet-connected smartphone or computer. Unlike traditional financial services, DApps don’t require lengthy applications to create an account, as users interact directly with smart contracts from their crypto wallet.

DeFi applications are also borderless, meaning they are country-agnostic and do not discriminate against users based on citizenship, geographic location, or government standing. Anyone can access funds on a DeFi app in one country, travel to another, and access their funds abroad without any restrictions whatsoever.

Transparent

DeFi applications are built on a blockchain network, a distributed ledger composed of smart contracts that stores transaction details as they occur and builds on top of them. Transaction activities become permanently cemented into the blockchain’s history of transactions across the entire network, while constantly updating it with new ones.

Because smart contracts and blockchain technology are designed to be permanent and publicly visible, transaction records cannot be hidden or altered thereafter. This allows all transaction activities to be visible to all market participants without violating privacy, because addresses are not directly tied to personal identities. It also allows anyone to audit the code and find bugs.

Trustless

DeFi recognizes and circumvents the trust problem of traditional finance by minimizing the need for third parties, banks, and clearinghouses. For most DeFi apps, users interact with self-executing smart contracts based on conditions being met, as opposed to waiting on approval from overseeing stakeholders.

Interoperable

Different DeFi applications (DApps) are designed to be compatible with each other, allowing DApps to be built or composed by combining DeFi products. This interoperability enables simple blockchain operation and a scalable ecosystem.

How DeFi is Disrupting Traditional Financial Services

Financial services such as borrowing, lending, and investing have traditionally been areas with a high barrier to entry, typically preventing people with little money or financial expertise from gaining access to these services. Though traditional banking is common in first world countries, there are over 1.7 billion people who are unbanked globally , representing over 30% of the human population, according to the most recent World Bank Global Findex report.

Domestically, 22% of US adults are underbanked or unbanked , according to the Federal Reserve’s most recent Report on the Economic Well-Being of U.S. Households. “Underbanked” means they have at least one account at an insured institution but also obtain financial services outside of the banking system such as money orders, check-cashing stores, payday loans, pawn shops, and more. The FDIC found in its 2019 “How America Banks” survey that 5.4% of US adults are unbanked entirely , having no accounts with any financial institution.

With the advent of DeFi, previously inaccessible financial services such as borrowing, saving, investing, and international payments are now accessible to anyone with access to the internet regardless of age, income, nationality, financial background, or credit score. To date, there are currently 3,809 DApps, with 140.59k daily active users.

What’s a DApp?

A DApp, or decentralized application, is a digital program that runs on a decentralized blockchain network without the control of a single authority. DApps are open-source and the basis for any cryptocurrency project; Bitcoin is considered the first DApp.

While the actual DApps themselves are typically ‘unownable’ services, DApps sometimes distribute underlying tokens that allow users to buy crypto.

DeFi applications can be built on any decentralized protocol but are primarily built on Ethereum, the premier decentralized blockchain network used for building new DApps which is powered by smart contracts and its native digital currency Ether. Ethereum enables developers to write smart contracts on the Ethereum blockchain which automatically execute when certain conditions are met. Smart contracts are then stored and executed across every node on the Ethereum network, making them decentralized applications.

The Ethereum DApps enable developers to build far more advanced technology than just trading cryptocurrency. Instead of needing to develop a new blockchain for every application, Ethereum created a secure platform for DApps to be built and deployed. Ethereum is one of the most popular blockchain networks and its native Ether token is the second-largest cryptocurrency behind Bitcoin.

DApps are similar to centralized applications but benefit from the features of existing on a decentralized blockchain network. Because they don’t have a single point of failure, they are thought to be more secure against cyberattacks. A distributed network of nodes maintains the network and prevents any system downtime common among centralized applications. DApps aren’t owned by anyone and aren’t subject to owner malfeasance such as embezzlement.

Examples of DeFi DApps

DeFi is a new space that only started to see the launch of live products in 2017 or so. Here are a few of the most popular types of DApps that emerged in 2020:

Borrowing and Lending Platforms

Securing a traditional loan typically involves submitting an application at a financial institution with ample personal information, agreeing to a credit check, pledging collateral (if necessary), and waiting for interest to be factored in by the intermediary for facilitating the loan that’s sourced by a federal institution. With DeFi, smart contracts connect interested lenders and borrowers, impose terms of loans, and impose interest without a third party. Lending DApps typically require collateral to be pledged in the form of crypto or stablecoins as a measure of insuring risk taken on by the lender. Through smart contract automation and elimination of a third-party intermediary, DApp lending platforms have formed loans with interest sometimes below 10 percent .

Decentralized Exchange (DEX)

A decentralized exchange (DEX) is an exchange that uses smart contracts to enforce trading rules, execute trades, and securely handle funds if necessary. Unlike centralized exchanges, DEXs don’t have an exchange operator nor do they require account creation, identity verification, or impose exchange fees. Because DEX’s are unique and don’t have a centralized authority, it is debated whether or not some or all DEX’s are subject to the crypto regulations enforced on centralized exchanges. Further, many DEX’s do not custody users’ funds at any point during trading, adding additional uncertainty as to the application of regulations. However, like any exchange, they do require liquidity to be able to match buyers and sellers.

Betting Platform

DeFi disrupts one of the most restricted and heavily centralized industries in existence: Gambling. In addition to an intensive and exclusive registration process, users of traditional online gambling platforms are subject to getting their betting limits lowered and accounts closed. With a decentralized peer-to-peer platform, this is not possible.

Several betting DApps have been launched as global betting platforms with no limits, allowing users to bet on traditional sports events as well as real-world events such as economics, elections, pop culture, and m
ore. Users can place bets using digital currencies and get rewarded in them upon winning a bet. Users buy or sell on a particular outcome of an event, with the DApp showing the current odds based on active user bets.

NFT Marketplace

An innovative DeFi development has been the launch of marketplaces for exchanging non-fungible tokens , or NFTs. NFTs are unique cryptographic tokens that represent digital goods such as online gaming goods and also tokenize real-world assets such as art, collectibles, company equity, and commodities. An NFT marketplace allows users to freely buy, sell, and trade NFTs representing otherwise non-fungible assets.

The Takeaway

DeFi is a term for the decentralized finance model that’s reengineering traditional financial services and products. By reallocating decision-making from central authorities to executable code within smart contracts, many financial services are becoming cheaper and easier to access for anyone.

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Photo credit: iStock/akinbostanci

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External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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