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Services offered by ISAC directly or in conjunction with others:
In addition, lenders play a key role through Loan Counseling.
Roles of Student Loan Organizations
There are numerous organizations in the student loan process. Knowing who they are and what their roles are will make the entire student loan process easier to understand.
Federal Government - The federal government created the Federal Family Education Loan Program (FFELP) and the Federal Direct Loan Program to make higher education more accessible for students by providing low-cost education loans. The federal government defines loan program regulations, eligibility criteria, interest rates, repayment provisions and other terms and conditions of the program. All organizations must follow the guidelines established by the federal government.
Schools - The school determines the student’s eligibility for student loans and other forms of financial aid using information from the Free Application for Federal Student Aid (FAFSA). The school then prepares an award package indicating what type of aid (including loans, grants and scholarships) the student qualifies for.
An eligible school may act as a lender under the Federal Stafford Loan Program and Federal PLUS Loan Program if it meets specified criteria.
Guaranty Agencies - State agencies, such as ISAC, or private companies provide insurance for federal education loans and reimburse lenders for a percentage of the principal amount of loan(s) in cases of loan default or loan forgiveness due to death or disability. The guarantee on a federal loan replaces the security, or collateral, that is normally required to secure a consumer loan.
Lenders - The lender is the organization that provides money for student loans. In exchange for the opportunity to use the money to pay education expenses, the borrower agrees to pay it back later with additional cost charged in the form of interest and fees. The fees are based on a percentage of the amount borrowed.
Most loan terms and conditions are similar from lender to lender; since the federal government establishes the regulations, terms, interest rates, etc. for Federal Stafford loans and Federal PLUS loans. The differences among lenders are in customer service, repayment options and benefits, and loan servicing. Many lenders sell their loans to secondary markets before the repayment period begins. Some lenders do not sell their loans that allow the borrower to have one contact throughout the life of the loan.
A division of ISAC, the Illinois Designated Account Purchase Program (IDAPP), also supports access to higher education for students by originating and servicing student loans.
Loan Servicers - Some lenders use Servicers or Secondary Markets to handle day-to-day student loan management. This may include sending billing statements during repayment, processing deferment and forbearance requests, and updating borrower accounts.
Secondary Markets - Secondary markets, such as IDAPP, buy student loans from lenders. This helps lenders free up money to make new loans to students. If the loan is sold to a secondary market, the borrower will be notified; however, the terms and conditions of the loan will not change.
Alternative Loan Providers - private loans (most commonly known as alternative loans) through lending institutions (i.e., banks, credit unions, private organizations) are also available to borrowers. These loans are available to help students and their families cover the Expected Family Contribution (EFC).
All families should apply for federal, state, and institutional financial aid before considering alternative loan sources.
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