Haris Ashley
Student loans are owned by either the federal government or private institutions, with the former guaranteeing almost all student loans. Federal student loans are offered to nearly every US citizen, regardless of credit history, and are available to those attending eligible schools. Private student loans, on the other hand, are offered by non-government lenders and require a credit check. They are often a last resort for students who cannot secure federal loans. Federally guaranteed student loans are distinct from private student loans and direct loans from the federal government. If a borrower defaults on a federally guaranteed loan, the government pays the bank and takes over the loan.
| Characteristics | Values |
|---|---|
| Owner of student loan debt | Federal government, private institutions, agencies like Sallie Mae, or third-party loan servicing companies |
| Student loan types | Federal loans, private loans |
| Federal loan types | Direct Loans, Perkins Loans, Federal Family Education Loans (FFELs) |
| FFEL types | Stafford, PLUS (Parent Loan for Undergraduate Students), Consolidation loans |
| Direct loans | Issued directly by the federal government |
| Guaranteed loans | Issued by private lenders, guaranteed by the federal government |
| Federal loan forgiveness | Available through the SAVE plan, income-driven repayment (IDR) plans, and loan rehabilitation programs |
| Private loan requirements | Credit check, income verification, cosigner may be needed |
| Federal loan eligibility | Available to US citizens attending eligible schools, requires FAFSA application |
| Federal loan interest rates | Determined by a formula set by Congress, changed annually |
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What You'll Learn
Federally guaranteed student loans
Guaranteed loans are also called Federal Family Education Loans (FFELs), and include Stafford Loans, PLUS (Parent Loan for Undergraduate Students), and Consolidation Loans. When the federal government takes over a defaulted FFEL, it uses a "'guarantee agency' to service the loan". Guaranty agencies are nonprofit groups that contract with the federal government and act as middlemen between the private lender and the federal government. The guarantee agency will pay the bank for the defaulted loan, and the federal government then reimburses the guarantee agency before it attempts to collect on the loan.
The guaranteed student loan program was ended by Congress on June 30, 2010, due to arguments that the program was more costly to the government than direct loans. However, the system will be in place for many years to come as millions of borrowers still owe money on FFEL guaranteed loans.
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Federal student loan forgiveness programs
Student loans are owned by either the federal government or private institutions. Federal student loans are owned by the US Department of Education, while private student loans are owned by the financial institution that granted them. Federal student loans include Direct Loans, Perkins Loans, and Federal Family Education Loans (FFELs).
The federal government has offered several student loan forgiveness programs. These programs are typically aimed at borrowers with lower incomes, large amounts of debt, or public service jobs. Here are some of the federal student loan forgiveness programs:
- Income-Driven Repayment (IDR) Plan: This plan bases your monthly student loan payment on your income and family size. If you repay your loans under an IDR plan, any remaining balance on your student loans will be forgiven after a certain number of payments over 20 or 25 years. The newest IDR plan is the Saving on a Valuable Education (SAVE) Plan, which can forgive your remaining balance after as few as 10 years.
- Teacher Loan Forgiveness (TLF) Program: Teachers who teach full time for five complete and consecutive academic years in certain elementary or secondary schools or educational service agencies that serve low-income families may be eligible for forgiveness of up to $17,500.
- Total and Permanent Disability (TPD) Discharge: If you have a physical or mental disability that severely limits your ability to work now and in the future, you may be eligible for loan discharge under the TPD program.
- Military Service Benefits: The US Department of Education and Department of Defense offer special benefits for military service members with federal student loans, including interest rate caps and student loan repayment programs.
- AmeriCorps Service: Completing a term of national service in an approved AmeriCorps program can make you eligible for the Segal AmeriCorps Education Award, which can be used to repay qualified student loans.
- NURSE Corps Loan Repayment Program: This program pays up to 85% of qualified nurses' unpaid college debt.
It is important to note that the availability and specifics of student loan forgiveness programs may change over time, and it is always a good idea to review the latest information from official sources. Additionally, some states, organizations, and companies may offer student loan repayment assistance, particularly for those working in high-need industries such as healthcare or education.
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Private student loans
Student loans can be owned by the federal government or private institutions. Private student loans are owned by the financial institution that granted them, such as banks, credit unions, or other lenders. Private student loans are not guaranteed by the government, and the federal government does not insure them.
The availability of repayment programs is an important difference between private and federally guaranteed student loans. Federally guaranteed loans may offer more generous repayment options, such as the Pay As You Earn (PAYE) plan. Additionally, federal loans typically have fixed interest rates, while private loans may offer variable interest rates that can rise over time.
When considering a private student loan, the lender will assess various factors, including the applicant's credit history and the presence of a co-signer. It is important to note that refinancing a federal loan into a private loan may result in the loss of certain benefits, such as loan forgiveness for those entering public service.
In summary, private student loans are not federally insured and are owned by the lending financial institutions. They differ from federally guaranteed student loans in terms of repayment options, interest rate stability, and the potential loss of benefits if refinancing from a federal loan.
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Federal student loan default
Student loans are owned by either the federal government or private institutions. Federal student loans are owned by the US Department of Education, while private student loans are owned by the financial institution that granted them. Federal student loans include Direct Loans, Perkins Loans, and Federal Family Education Loans (FFELs).
FFELs are federally guaranteed student loans issued by private lenders like Sallie Mae and commercial banks. If a borrower defaults on a guaranteed loan, the federal government pays the bank and takes over the loan. The government uses a "'guarantee agency' to service the loan, and these agencies are nonprofit groups that contract with the federal government. The guarantee agency will pay the bank for the defaulted loan, and the federal government reimburses the guarantee agency before it attempts to collect on the loan.
The US Department of Education announced that its Office of Federal Student Aid (FSA) would resume collections of its defaulted federal student loan portfolio on May 5, 2025. The Department had not collected on defaulted loans since March 2020. FSA will restart the Treasury Offset Program, and borrowers in default will receive emails urging them to contact the Default Resolution Group to make a monthly payment, enroll in an income-driven repayment plan, or sign up for loan rehabilitation.
According to Federal Reserve data, total US student loan debt reached more than $1.7 trillion in the fourth quarter of 2022. About 42.7 million borrowers owe more than $1.6 trillion in student debt, and more than 5 million borrowers have not made a monthly payment in over 360 days, with many in default for more than 7 years. As a result, there could be almost 10 million borrowers in default in the upcoming months, which would put almost 25% of the federal student loan portfolio in default.
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Direct student loans
Student loans in the US are generally owned by either the federal government or financial institutions. The type of loan one takes out determines who owns the loan, although the federal government will likely play some role in it, such as backing the loan.
The availability of repayment programs is one of the most significant differences between guaranteed and direct loans. The federal government offers several repayment plans for low-income borrowers with direct loans, such as the Pay As You Earn (PAYE) plan. These repayment plan options are generally more generous for direct loans than for federally guaranteed loans.
Before June 30, 2010, lenders issued federal student loans as either guaranteed student loans or direct loans. The type of loan a student received depended on which loan program their school had signed up for. After this date, only federal direct loans were available under the direct student loan program.
Federal student loans can include Direct Loans, Perkins Loans, and Federal Family Education Loans (FFELs). FFELs include Stafford, PLUS (Parent Loan for Undergraduate Students), and Consolidation loans. When the federal government takes over a defaulted FFEL, it uses a "guarantee agency" to service the loan. These agencies are nonprofit groups that contract with the federal government and act as middlemen between the private lender and the government.
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Frequently asked questions
Federally insured student loans are loans made by private lenders that are guaranteed by the federal government. If a borrower defaults on a federally insured loan, the federal government pays the bank and takes over the loan.
You can contact the Federal Student Aid Center at 800-433-3243 to find out if your loan is held by the government. If the loan on your credit report isn't with the Department of Education, it's likely a private student loan owned by a bank or another lender.
If you default on a federally insured student loan, the loan will be sent to the government for collection. The full amount owed, including principal and interest, becomes immediately due. You have the option to pay this amount or negotiate a settlement for less. You can also enter a loan rehabilitation program, which will bring your account current by enrolling you in a payment plan based on your income and family size.
