While contemplating faking my death to get rid of my student loan debt (kidding!) I started to wonder what would happen to my loans if the loan provider, say Sallie Mae, were to go bankrupt or out of business for some unforeseen reason. Would they just be transferred to another company if they opted to bail Sallie Mae out?
Loans are an asset to the lender. They can just sell them if they need to. All types of loans, including student loans, get sold all the time. A bankrupt company would have to sell its student loans to recoup as much money as possible.
With any loans there’s really two questions: who owns the debt and who owns the servicing contract. The debt owner is the guy who loaned you the money, the servicer is the guy who sends you bills and keeps track of how much you owe. The creditor and the servicer may be the same guy but just as often they aren’t.
If the creditor goes under, the debt that he owns is considered an asset which can be sold off during the bankruptcy proceedings. Whoever buys the debt needs to ensure that it is serviced – they can do it themselves, hire a loan servicer, or continue using the existing one if it is a separate entity from the bankrupt creditor.
If the servicer goes bankrupt and ceases operations, then the creditor most transfer the account to a new one.