School
Schools play a major role in the student loan process by:
Determining financial aid awards which affect the amount students will ultimately need to borrow.
Making recommendations on lender choice.
Providing answers to student loan questions.
Guarantor
In the Federal Family Education Loan Program (FFELP), the guarantor is the primary reason that students with no credit histories can receive student loans. A guarantor is a state or private nonprofit agency approved by the Department to guarantee FFELP student loans.
In return for making loans under the FFELP, lenders are guaranteed repayment of most of the loan if they follow all federal guidelines for managing loans. If a borrower defaults on a federal student loan, the loan is turned over to the guarantor. The guarantor reimburses the lender and continues to aggressively pursue the borrower for collection.
The Department is the lender for the William D. Ford Federal Direct Loan Program (FDLP),
so guarantors are not required to guarantee FDLP student
loans.
Secondary Market
A secondary market is an organization that purchases loans from other lenders. By purchasing loans, they replenish lender funds, which enables lenders to make additional loans to students and parents.
Servicer
Usually, lenders and secondary markets hire companies to manage student loans. These companies are called servicers. A servicer performs tasks on behalf of the lender or secondary market. These activities may include processing loan applications, answering customer service phone calls, processing loan payments, and collecting delinquent accounts.
Credit Bureau
Credit bureaus gather and store credit information on
individuals. A credit report is a necessary step when
applying for all PLUS loans and most private loans,
credit cards, car loans, or home mortgage loans. Credit
bureaus are used when a credit report is needed for
a loan application.
After you borrow, the lender reports to credit bureaus how much you borrow and whether you are making payments on time. This information is then available to potential employers and creditors.
Finally, note that a single entity might play more than
one role in your student loan process. Your lender may
also be your servicer. Or, if you're in the FDLP, the
federal government may take on the roles of lender and
guarantor besides acting as program's administrator
and regulator.
NEXT - Loan Life Cycle
