Student Loan Lender, Servicing Agencies (Servicers)

"Student Loan Lender, Servicing Agencies (Servicers)" submitted by SchoolGrantsfor Editorial Team and last updated on Sunday 8th January 2012

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The lender is the source of the money you borrow—a bank, savings and loan or credit union. Creditor/Lender is a person who owed money under the terms of an agreement, promise, or law. The issuer of any loans or credit cards you have is your creditor/lender. Company hired by a lender or secondary market to manage the day-to-day details of loan tracking and collection. The lender can choose to keep the loan until it is paid in full, contract with a servicer to handle the paperwork or sell it to a secondary market. It is important to notify your lender/servicer in a timely manner of changes to your address, phone number or any other pertinent information. A key to your financial success is keeping your lender or loan servicer updated on any changes in your contact information if you move, transfer to a new school or change your phone number, contact your lender immediately.

If you receive federal student aid from any program mentioned in this publication (except for Federal Work-Study), and you withdraw from school, some of that money might have to be given back to the source by you or by your school. Even if you don’t finish your course work, you’ll have to repay the loan funds you received, minus any student loan funds your school has returned to your lender.

Defaulters are ineligible for additional federal student aid until the defaulted loan is in good standing and satisfactory arrangements have been made with the lender to repay the loan. Failure to repay a loan according to the terms agreed to when you signed a promissory note. For the FFEL and Direct Loan programs, default is more specific - it occurs if you fail to make a payment for 270 days if you repay monthly (or 330 days if your payments are due less frequently). The consequences of default are severe. Your school, the lender or agency that holds your loan, the state and the federal government may all take action to recover the money, including notifying national credit bureaus of your default. This may affect your credit rating for as long as seven years. Moreover Forbearance must be approved by your lender.

The basic difference between the Direct Loan and FFEL programs is who originates and holds the loans. In the FFEL program, a private lender (usually a bank or credit union) receives a subsidy from the federal government to make the loan. The college or university certifies the borrower’s eligibility and helps disburse the loan. The student repays the holder of the loan and, if the student becomes delinquent, the holder of the loan initiates collection efforts. In the Direct Loan program, by contrast, the federal government makes the loans directly to the students.

More than 4,000 private lenders, guaranty agencies, loan servicers, secondary markets, and collection agencies participate in the FFEL program. Included in this total is Sallie Mae, the largest holder of student loans in the country, which currently holds 45 percent of all federal student loans. In addition to making, holding, and servicing student loans, Sallie Mae operates a secondary market that buys federal student loans from private lenders, thus releasing the original lenders from the complex loan collection requirements and freeing their capital to make new loans. Besides Sallie Mae, some 25 private nonprofit and state secondary markets purchase loans from the original lenders.

Roughly three dozen state and private nonprofit guaranty agencies administer federal insurance on FFEL student loans and work to minimize student loan defaults. If an FFEL borrower defaults on repayment, the guaranty agency pays the holder 98 percent of the face value of the loan and attempts to collect from the borrower. At the same time, the federal government reimburses the guaranty agency up to 98 percent of the value of the loan. If the agency is unable to collect, it assigns the loan to the Department of Education and the federal government initiates collection efforts.

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Credit Card Lender

When you make a purchase or obtain cash, a debit card withdraws money directly from your checking account while a credit card bills each transaction to your charge account. With a credit card, you must pay the funds back to the lender.

Notify your lender or loan servicing agency when you:

If you Sale of loan

If you or your parents borrow under the FFEL Program, you (or your parents, or graduate and professional degree students for PLUS Loans) must be notified when the loan is sold if the sale results in making payments to a new lender* or agency. Both the old and new lender must provide this notification. You must be given:

Find a lender?

Direct PLUS Loan—No. The U.S. Department of Education is the lender. FFEL PLUS Program—Yes. You will need to find a participating lender. Your school or the guaranty agency* that serves your state can help you locate a participating lender. For the address and telephone number of your state guaranty agency, contact the Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243)

Servicing Agencies (Servicers)

Companies that administer loans in handling billing, collections, deferments, etc for the Department of Education, lenders and secondary markets. The servicer is an entity hired by the lender or secondary market to track and collect loan payments and to process information on details such as address changes, deferments and billing. They issue monthly statements, handle billing and collect payments. If your lender transfers administrative tasks to a servicing agency, you’ll receive your payment schedule from and make your payments to that agency.

Secondary Market

Secondary market refers to private companies that purchase student loans from originating lenders. The sale of a loan does not alter its terms.

Administrative Forbearance

A temporary suspension, reduction or extension of time for making principal and/or interest payments on your student loan. This is granted by the current loan holder or servicer. Contact your lender for more information. The Department has authorized FFELP lenders to grant an administrative forbearance to borrowers who contact them, in writing, by phone, or in person, and state that they are experiencing a hardship because they are waiting, but unable, to consolidate their loan/s into the Federal Direct Consolidation Loan program. For delinquent borrowers, the forbearance can be granted retroactive to the beginning of the delinquency period. The end date of this specific forbearance is the date the loan is consolidated. The borrower’s written or phone request, noted by the lender in the borrower’s file or record, will serve as sufficient documentation for granting the administrative forbearance.

Administrative Forbearance allows you to temporarily delay principal payments on your student loan for a specific period of time. It must be granted by the lender if you are serving in a medical or dental internship or residency program, or if you are in a national service position such as AmeriCorps.

Mandatory Administrative Forbearance

Your lender automatically grants a Mandatory Administrative Forbearance when circumstances dictate. While the qualifying situations vary, most Mandatory Administrative Forbearances are granted for circumstances outside of your control, such as local or national emergencies, natural disasters, and involuntary military service. The borrower can be granted a mandatory administrative forbearance up to 3 years (on standard or graduated repayment schedules), and up to 5 years (on income sensitive repayment schedules).

There are also types of mandatory forbearance that your lender or servicer can apply to your account without a written request. This type of postponement of payments is called a Mandatory Administrative Forbearance. Although no written request is needed, your lender or servicer, when applying such a postponement, must send you a notice stating that you:

Prior delinquency is not resolved by mandatory administrative forbearance. The borrower may receive a mandatory administrative forbearance for several reasons:

Mandatory Administrative Forbearance must be granted by the lender for periods during which the borrower is involved in a local or national emergency or military mobilization, or resides in a designated disaster area. Contact your lender for more information.
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