Lender Fact Sheets
Glossary
Cohort Default Rate
The Cohort Default Rate is the percentage of students with loans entering repayment in a given fiscal year who default on their obligations before the end of the next fiscal year. The U.S. Department of Education publishes this rate. The most current rate is for the cohort that entered repayment in FY 2006.
Loan Consolidation
(Also called "Federal Consolidation Loan") A loan to combine a borrower's outstanding education loans into a single loan with a single monthly payment. The borrower may choose to include all loans or only certain loans. Consolidation often provides new repayment terms and a weighted average interest rate. While an originating lender may not consolidate student loans, the lender may sell its loans to a secondary market that does consolidate student loans.
Electronic Funds Transfer (EFT)
EFT is used to wire funds for Stafford and PLUS loans directly from lenders to schools without requiring an intermediate check for the student to endorse. The money is transferred electronically instead of using a paper check, and hence is available to the student sooner.
Electronic Processing
Loan data processing performed mostly by computers.
Holder
The holder is the lender, institution or agency that holds legal title to a loan. The holder may be the bank that issued the loan, a secondary market that purchased the loan from the bank, or a guarantee agency if the borrower defaulted on the loan.
Blanket Guarantee
TG is authorized to offer eligible lenders participating in our guaranty program a Blanket Certificate of Loan Guaranty or "Blanket Guarantee" that permits the lender to make loans without receiving prior approval from TG. In the Blanket Guarantee process, the school will transmit the loan certification directly to the lender and the lender will return a guarantee response to the school. Then the lender will transmit the loan request to TG within 10 days of the first disbursement.
Originating Lender
The originating lender is the actual source of the money for student loans. It may be a bank, credit union, or savings and loan. Once an originating lender makes a student loan, it has two options. It can keep the loan and service the loan itself (or hire a servicer to handle the day-to-day administrative details). Or an originating lender can sell the loan to a secondary market that then takes responsibility for administering the loan. Individual originating lenders manage their loans differently; so, borrowing all school loans through one lender will probably simplify repayment. The new Master Promissory Note makes this easier.
Secondary Market
Secondary markets are organizations that purchase student loans from originating lenders. The originating lenders then take the money they receive from the loan payoff and lends it to other students. When a loan is sold to a secondary market, loan terms do not change, although secondary markets may offer attractive interest rate reductions or rebates. When a secondary market buys a loan, it becomes the new "holder" of the loan.
Servicer
The servicer is an organization that is hired by an originating lender or secondary market to manage the day-to-day details of tracking and collecting loan payments. These administrative functions include:
- Disbursing loan funds
- Monitoring loans while borrowers are in school
- Collecting payments
- Processing deferments and forbearances
- Responding to borrower inquiries
- Ensuring that the loans are administered in compliance with federal regulations and guarantee agency requirements
Servicers will be the primary contact for borrowers; they can answer questions about the borrower's student loan.
Subsidized Stafford Loan
With a Federal subsidized Stafford Loan, the government pays the interest on the loan while the student is in school, during the six-month grace period, and during any deferment periods. Subsidized loans are awarded based on financial need.
Unsubsidized Stafford Loan
A Federal unsubsidized Stafford Loan is a loan for which the government does not pay the interest. The borrower is responsible for the interest on an unsubsidized loan from the date the loan is disbursed, even while the student is in school. Students may avoid paying the interest while they are in school by capitalizing the interest, which increases the loan amount. Unsubsidized loans are not based on financial need and may be used to finance the student's federally calculated Expected Family Contribution.
Reduced Origination Fee
All loans disbursed on or after July 1, 1994, for a period of enrollment that either includes or begins after that date, are subject to a maximum 1% federal default fee and a maximum 3% federal origination fee. The origination fee is assessed to the borrower and paid to the U.S. Department of Education by the lender. The lender, however, may pay all or a portion of the origination fee on a Federal Stafford loan on a borrower’s behalf. This fee must be charged to Federal PLUS loan borrowers. Lenders who offer a reduced origination fee are paying all or part of the origination fee rather than passing this fee on to the Federal Stafford loan borrower. The lender must ensure that origination fees are assessed equally to all Stafford borrowers who reside in a particular state or attend school in that state.
E-signature
Electronic signature (E-signature) gives borrowers the option to sign FFEL Program promissory notes electronically. In most cases, borrowers will use a federal personal identification number (PIN) as part of the e-signature process. This number is similar to the PIN used when withdrawing money from an ATM or the password used to check an e-mail account. A behind-the-scenes technical encryption process helps to make the PIN secure. E-signature eliminates mail delays associated with traditional hardcopy promissory notes. Students simply use the PIN provided to them by the U.S. Department of Education, along with their social security number and birth date, to authenticate their identity and sign their promissory note online. As established by the Electronic Signatures in Global and Nation Commerce Act (E-Sign Act) these electronically-signed promissory notes have the same legal authority as paper documents.
Private Loans
Federal and state financial aid programs (including loan programs) have not kept pace with rising postsecondary education tuition costs. The private sector is stepping in to fill the gaps. Although most private loans are provided for graduate students, they are starting to be utilized by undergraduates as well. Private loans help cover unmet financial need and in most cases they provide a cheaper source of funds than credit cards.
Parent PLUS Loans
A Federal PLUS loan is available to an eligible parent of a dependent undergraduate student attending a participating postsecondary school. A parent PLUS loan borrower must be creditworthy or must obtain a creditworthy endorser on the loan. The parent is responsible for paying to the lender the interest that accrues on the loan from the time the loan is disbursed until it is paid in full. Repayment of the loan is scheduled over a maximum 10-year period.
Graduate/Professional PLUS Loans (Grad PLUS)
A Federal Graduate/Professional PLUS loan is available to an eligible graduate or professional student attending a participating postsecondary school. A Grad PLUS loan borrower must be creditworthy or must obtain a creditworthy endorser on the loan. The student is responsible for paying to the lender the interest that accrues on the loan from the time the loan is disbursed until it is paid in full. Repayment of the loan is scheduled over a maximum 10-year period.