Student loan guarantor
A guarantor is a person or agency that agrees to pay someone else’s debt should he or she default on a loan.[1] In the case of student loans 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.[2]
Contents |
[edit] 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 history).
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.[3]
[edit] 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.
[edit] See also
- Surety
- Aval
- Co-signing
- Indemnity
- Surety bond
- Surety (Canadian criminal law)
- American Student Assistance
- Voluntary Flexible Agreement
- Student debt
[edit] References
- ^ American Student Assistance Retrieved on June 8, 2010.
- ^ The SmartStudent Guide to Financial Aid. Retrieved on October 3, 2008.
- ^ https://www.guarantorloansonline.co.uk
