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Before an institution can begin making loans in the Federal Family Education Loan Program (FFELP) or Federal Direct Loan Program, it must meet the statutory definition of an "eligible school," and agree to perform certain administrative functions. Statutory requirements for institutional eligibility are discussed in Volume 2 - FSA Handbook: School Eligibility and Operations. A school may also act as a lender in FFELP, provided it uses the bulk of the interest and special allowance payments to make financial aid grants to its students. The school must complete an educational lender agreement with the guarantor (ISAC) before loans may be originated.
The school’s primary responsibility in the loan origination and/or application process is to certify that the student is eligible for the loan amounts requested. The school, not the lender, determines the student’s or parent’s eligibility for a Federal Stafford or PLUS Loan.
Lender Responsibilities
To participate in FFELP, a lender must meet the guarantor’s eligibility requirements and complete a lender agreement with the guarantor (ISAC) to participate in the program. A lender also may complete other agreements (holder agreement or Blanket Certificate of Loan Guaranty) to take advantage of various products and services offered by the guarantor.
To maintain eligibility to participate in FFELP, a lender must administer its loan portfolio in compliance with:
- the Higher Education Act of 1965 as amended;
- federal regulations administered by the U.S. Department of Education (ED);
- federal directives, including ED’s guidance such as Dear Colleague Letters/Dear Partner Letters;
- guarantor policies; and
- other requirements and procedures provided by the guarantors with which the lender participates.
To facilitate full access to postsecondary education for all eligible students, federal regulations authorize a Lender of Last Resort. The principal guarantor for each state is responsible for developing rules and procedures for this program. A lender must complete a Lender of Last Resort agreement with the guarantor in order to participate in this program.
The Common Manual provides more information regarding the lender’s responsibilities.
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