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 (ED) administers the federal student loan programs. Following the passage of the Health Care and Education Reconciliation Act of 2010, ED's Direct Loan Program is the sole provider of most student loans, including Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans (for the parents of dependent students and for graduate/professional students), and Direct Consolidation Loans.
Borrower
You or your parents-the person who receives the student loan and is responsible for repaying the loan.
Lender
Who lends the money for your student loan. For federal loans, ED is the lender, except for Perkins loans, which are made by schools. There are also lenders of private loans. Such lenders include banks. Some schools have developed working relationships with multiple private loan lenders ("preferred" lenders). Contact each school's financial aid office or web site for their preferred lender list(s).
Lenders own loans and receive borrower payments.
School
Schools play a major role in the student loan process by:
- Determining the amount of financial aid a student will receive. This will affect the amount of money students may need to borrow
- Providing lists of preferred lenders for non-federal loans
- Providing answers to student loan questions
- Making Perkins loans.
Servicer
Often, lenders hire companies to manage student loans. These companies are called servicers. A servicer performs tasks on behalf of the lender. These activities may include processing loan applications, answering customer service phone calls, processing loan payments, and collecting delinquent accounts. Sallie Mae is a servicer for ED's Direct Loan Program.
Credit Bureau
Credit bureaus gather and store credit information on individuals. A credit check 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 check 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.
