The Players

The federal government? Lenders? Servicers? Who are they and what role do they play in the loan process?

Federal Government

The U.S. Department of Education (the Department) administers the federal student loan programs. As noted below, it also serves as the lender under certain loan programs.

Borrower

You or your parent—the person who receives the student loan and is responsible for repaying the loan.

Lender

Who lends the money for your student loan. Most schools have developed working relationships with single lenders or multiple lenders ("preferred" lenders). Contact each school's financial aid office or Web site for their preferred lender lists.

The following could be a lender:

• Bank
• Savings and loan association
• School
• Credit union
• Pension fund
• Insurance company
• Consumer finance company
• Federal government

Lenders own loans and receive borrower payments. Lenders frequently sell their loans to other parties. If this happens, you will be notified and you will be told who the new owner is.

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.