Student Loan Guarantor
Encyclopedia
A guarantor is a person or agency that agrees to pay someone else’s debt should he or she default on a loan. In the case of student loan
s in the United States, the government guarantees the federal loans that students borrow. Federal student loans are a much lower risk when compared to other unsecured loans, partly because they are extended from a lending institution under the guarantee of the Federal government. Loan guarantors are state-run or private organizations in charge of administering the Federal Family Education Loan Program
(FFELP), which subsidizes participating student lenders. Borrowers generally pay a 1% default fee that is collected after each disbursement to the guarantee agency in order to cover the costs of insuring the loan, though some agencies will waive this fee.
).
The use of a guarantor does not mean that a loan application will be approved automatically, for the guarantor is considered part of the loan application and its credit will be evaluated with the other applicants. If the lending institution feels that the guarantor will not be able to pay back the debt, the loan will not be approved.
A loan with a guarantor is a fairly new sort of unsecured loan product that has been made for people who either have had difficulties paying debt, resulting in poor or bad credit i.e. CCJ, Defaults and missed payments or in some cases those who have never had any form of credit in the past.
Student loan
A student loan is designed to help students pay for university tuition, books, and living expenses. It may differ from other types of loans in that the interest rate may be substantially lower and the repayment schedule may be deferred while the student is still in education...
s in the United States, the government guarantees the federal loans that students borrow. Federal student loans are a much lower risk when compared to other unsecured loans, partly because they are extended from a lending institution under the guarantee of the Federal government. Loan guarantors are state-run or private organizations in charge of administering the Federal Family Education Loan Program
Federal Family Education Loan Program
The Federal Family Education Loan Program was the second largest of the U.S. higher education loan programs . The FFEL was initiated by the Higher Education Act of 1965 and was funded through a public/private partnership administered at the state and local level...
(FFELP), which subsidizes participating student lenders. Borrowers generally pay a 1% default fee that is collected after each disbursement to the guarantee agency in order to cover the costs of insuring the loan, though some agencies will waive this fee.
Guarantors and credit
Student loan applicants generally use a guarantor if they feel they will be unable or unwilling to secure a loan on their own (for example, if the applicant has poor credit or no credit historyCredit history
Credit history or credit report is, in many countries, a record of an individual's or company's past borrowing and repaying, including information about late payments and bankruptcy...
).
The use of a guarantor does not mean that a loan application will be approved automatically, for the guarantor is considered part of the loan application and its credit will be evaluated with the other applicants. If the lending institution feels that the guarantor will not be able to pay back the debt, the loan will not be approved.
A loan with a guarantor is a fairly new sort of unsecured loan product that has been made for people who either have had difficulties paying debt, resulting in poor or bad credit i.e. CCJ, Defaults and missed payments or in some cases those who have never had any form of credit in the past.
Multiple guarantors
In a case where there are multiple guarantors, usually each party is responsible for the entire amount of the debt. If a borrower defaults on a student loan, the guarantee agency will pay the lending institution most of the remaining loan balance. If a guarantor is forced to pay for a student loan default, they are responsible for collecting the remaining balance from the borrower.See also
- SuretySuretyA surety or guarantee, in finance, is a promise by one party to assume responsibility for the debt obligation of a borrower if that borrower defaults...
- AvalAvalAval , in Spain, is a joint commitment to payment of an obligation in favor of the creditor or beneficiary. It is granted by a third party, in case the principal debtor does not fulfil the obligation of payment of a credit title....
- Co-signingCo-signingThe act of co-signing involves a promise to pay another person's debt arising out of contract if that person fails to do so. Many realtors and landlords require a cosigner for college students, people with bad credit or people whose income is less than a certain, low multiple of the amount of rent...
- IndemnityIndemnityAn indemnity is a sum paid by A to B by way of compensation for a particular loss suffered by B. The indemnitor may or may not be responsible for the loss suffered by the indemnitee...
- Surety bondSurety bondA surety bond is a promise to pay one party a certain amount if a second party fails to meet some obligation, such as fulfilling the terms of a contract...
- Surety (Canadian criminal law)
- American Student AssistanceAmerican Student AssistanceAmerican Student Assistance is a non-profit services and advocacy organization dedicated to helping students and families manage higher education debt. It is headquartered in downtown Boston, Massachusetts.- Name change :...
- Voluntary Flexible AgreementVoluntary Flexible AgreementThe Voluntary Flexible Agreement was created by the United States Congress in 1998 during a reauthorization of the Higher Education Act of 1965. The VFA enables Federal Family Education Loan Program guarantors to develop programs and techniques to help borrowers avoid student-loan default and...
- Student debtStudent debtStudent debt is a form of debt that is owed by an attending, withdrawn or graduated student to a lending institution. The lending may usually be a student loan, but debts may be owed to the school if the student has dropped classes and withdrawn from the school Student debt is a form of debt that...