An Explanation of Student Loan Corporations
Types of Lending Sources That Help Finance Your College Education
The phrase “student loan corporation” has no formal definition, but it is generally used to describe either an originator or a servicer of student loans.
Student Loan Originators
An originator is an entity that makes loans. It can refer to either a banking officer or, as in this case, a lending corporation. Through the early 1990s, private companies were permitted to make, and profit on, federally guaranteed student loans. In 1993 a trend toward direct federal lending began, which affected the business of many student loan originators, and the global recession made the business so much less profitable for the remaining lenders that most have dropped student loans altogether.
Sallie Mae is perhaps the best-known example among the remaining originators of private student loans. Its history with student loans began when it was created in 1972 as a government-sponsored enterprise (GSE, a type of financial company created by federal law), making loans under the former Federal Family Education Loan Program (FFELP, which is now the Direct Loan program). It gradually became privatized, a process that concluded in 2004 when its federal charter as a GSE was terminated.
Today Sallie Mae services both older federally guaranteed student loans and the new student loans it originates under its private Smart Option Student Loan program, meaning it functions as both an originator and a loan servicer.
Student Loan Servicers
A loan servicer is the company to which you make payments on your loan. Your loan servicer will maintain your account information, usually letting you create an online account for that purpose, provide regular statements and other information about the loan’s current status, and handle collection efforts if you fail to pay as agreed.
Sometimes your originator and servicer are the same company, as when Sallie Mae makes its own private loans and then services them. In other cases like the federal Direct Loan program, the two are different. For all Direct Loans, the U. S. Department of Education (USDOE) is the lender, but USDOE chooses a private servicer to work with you from a list posted on the government’s student loan site.
Here are some of the duties performed by student loan servicers:
- Doing the bookkeeping for your loan by accepting and tracking payments, interest and principal amounts, and other financial details.
- Interacting with the student client to provide loan information, which can be done by posting updates on a website, by letter, or by personal contact.
- Working with clients who have difficulty keeping up with payments as scheduled.
That third item is perhaps the most important function from the student’s point of view, because of the economic vicissitudes that frequently beset new college graduates who haven’t yet found the positions for which they have trained. A loan servicer who is willing to provide much-needed flexibility in repayment can help you keep your credit history unmarred, which will make all your future borrowing as cheap as possible.
Student Loan Corporations Created By States
This is a special category, and the companies in it provide various financial services to college students, depending on how their state charters defined their activities. They can originate and service loans as well as providing an informational gateway for students seeking various types of financial aid and information on how to obtain it. The following are a few examples of this type of business, to give you some idea of exactly what it is they do.
The Kentucky Higher Education Student Loan Corporation (KHESLC) is a public nonprofit lender created by the Kentucky state government to administer Kentucky’s student loan program, the Kentucky Advantage Education Loan. KHESLC does not try to sell students on that loan, but rather recommends it as an alternative loan, the option to try if you have exhausted the possibilities of grants, scholarships, and the cheaper federal loans, but still have unpaid educational costs.
That approach is designed to benefit the student rather than the lender, which is usual with government loans. While your Kentucky Advantage loan stays out of default, KHESLC will service it, but if default occurs KHESLC is required to pass off servicing functions to another Kentucky state company called the Kentucky Higher Education Assistance Authority, which has particular expertise in managing troubled loans.
Texas formed a similar public nonprofit, the Texas Guaranteed Student Loan Corporation (TG), which provides information to help students understand their options and make the necessary financial arrangements before attending college. TG does not make loans, but it does administer old FFELP loans, all of which were made before June 30, 2010.
As a general rule, when beginning your search for financial aid, you should start with your state’s equivalent of KHESLC or TG. These companies were created to assist students find some way through college, and you can depend upon their advice.