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The Federal Family Education Loan Program (FFELP), private alternative loan programs, and Federal consolidation loan programs can be confusing for both student and parent loan borrowers. This website and others linked here provide an overview of various student loan programs, lender choices, and Purdue's preferred lenders.
Federal Student Loan Terminology
Guarantor: The state or nonprofit private agency that administers the FFEL program in each state. USA Funds, Inc. is the designated guarantor for the state of Indiana.
Lender: The organization that makes a loan initially; the lender could be the borrower's school (for Federal Perkins Loans); a bank, credit union, or other lending institution (for FFELP loans), or the U.S. Department of Education (for Direct Loans at Direct Loan institutions).
Loan Holder: The organization that "owns" a loan to which the borrower owes repayment. Many banks sell loans, so the initial lender and the current holder could be different.
Secondary Market: An agency that purchases student loans from originating lenders so these lenders can make additional loans. The Student Loan Marketing Association (Sallie Mae) is an example of a secondary market. If such an organization buys the loan, that organization becomes the "loan holder".
Servicer: An agency a school or lender employs to service (disburse and collect) a student loan account. Often, the borrower will deal with the loan servicer when there are questions about repayment. Servicers also approve deferments and forbearances on the lender's behalf.
Life-of-Loan Servicing: A lender, servicer, and secondary market develop agreements to maintain a single point of service for the borrower from loan origination through repayment to ensure no interruption of service providers.
Student Loan Discounts: Often referred to as "borrower benefits", many lenders offer loan discounts to encourage borrowers to obtain their education loans from them. While federal laws set the maximum interest rates and fees on FFELP loans, nothing prevents a lender from charging lower interest rates and fees.
FFELP Lender Choices
Federal student loan borrowers always have the option (by federal law) to utilize one of more than 3,000 FFELP lenders who work with over 35 different federal guaranty agencies. Many lenders sell their loans on the secondary market to one of more than 65 secondary loan entities. Purdue-West Lafayette processes loans for more than 100 different FFELP lenders.
The U.S. Department of Education has issued guidance regarding how student loan borrowers should choose and evaluate FFELP lenders. Student loan borrowers can choose from a school's preferred list of lenders or another lender of choice. Borrowers will want to compare the following aspects of lender services when deciding which lender to choose:
- Ability of lender to service all your loans.
- Interest rates and terms: Although these are very similar for the federal loan programs, some lenders do offer better terms or discounts.
- Repayment plans: some are simple, others complex.
- Benefits for borrowers who pay on time or make loan payments electronically.
- Customer service: Can you reach a live operator quickly to check on the status of your loan during hours convenient for you?
For more information about how to choose a FFELP lender visit www.finaid.org/loans/choosing.phtml.
FFELP Borrower Benefits
The most common loan discounts include a 0.25% interest rate reduction for having your monthly loan payments direct debited from your bank account (and also often requiring online electronic statement delivery). This is an example of a "back-end" borrower benefit. Many lenders also waive the origination fees on Stafford Loans. This is an example of a "front-end" borrower benefit. Depending on the guarantor, they may also waive the 1% guarantee fee. For more information on borrower benefits offered by lenders visit www.finaid.org/loans/studentloandiscounts.phtml.
Private Alternative Loan Lender Choices
The private sector alternative loan marketplace is not subject to federal student aid regulations. A wide and growing array of private loan products are now in the marketplace. Purdue-West Lafayette processes loans for more than 30 different alternative loan lenders annually. For information about how to a choose a private alternative loan lender visit www.finaid.org/loans/privatestudentloans.phtml.
Federal Consolidation Loan Lender Choices
Students and parents can consolidate their loans with any federal consolidation lender, even if all of their federal loans are with a single lender based on a June 15, 2006 federal law change (even Direct Loans can be consolidated with any lender). This allows the borrower to shop around for a consolidation lender that offers a lower rate or better discounts, though most lenders require a minimum balance before they will consolidate loans ($5000-$7500). Purdue-West Lafayette does not advocate one consolidation lender over another, but does provide information to borrowers about Sallie Mae federal consolidation loans at www.purdue.edu/dfa/loans/consolidation.htm. For more information on federal student loan consolidation lender choices visit www.finaid.org/loans/consolidation.phtml.
Purdue West-Lafayette Preferred Lenders for 2007-08*
To advocate for Purdue student loan borrowers, Purdue conducted a Request for Proposal [“RFP”] process in 2004 to choose a preferred FFELP loan service provider and a preferred private credit alternative loan provider. A campus wide committee of administrators led by our Purchasing area conducted this RFP process on behalf of Purdue borrowers. Our agreed upon selection criteria included a holistic review of proposals and loan servicer history with a goal of obtaining the best student borrower benefits and school/administration benefits (technical expertise, default management expertise, etc.).
Through this competitive bidding process, Sallie Mae emerged as the FFELP and alternative loan service partner of choice for a variety of reasons, including a long standing track-record in the student loan business. Sallie Mae and Purdue Employees Federal Credit Union (PEFCU), an Indiana-based non-profit lender (not affiliated with Purdue University), partnered on an attractive FFELP borrower benefit package with a commitment to life-of-loan servicing. Sallie Mae offered a commitment to review borrower benefit programs on an annual basis. Sallie Mae also offered special pricing on alternative loan products ("Signature Loans").
Purdue University believes that our preferred lender arrangments provide Purdue student loan borrowers a life-of-loan servicing option with competitive front-end and back-end borrower benefits. Note that neither Purdue University or the Division of Financial Aid receives any financial incentives or revenue sharing for referring students to any lender. Purdue University did receive a premium on the sale of School as Lender loans to Sallie Mae, but uses the proceeds to provide for need-based scholarships as required by federal laws.
Purdue-West Lafayette Graduate Stafford School as Lender Program and Service Partner Selection*
To enhance our need-based aid funding pool and to maintain competitive FFELP borrower benefits for our graduate students, Purdue-West Lafayette conducted an RFP process in 2005 to choose a preferred loan service provider to administer life-of-loan servicing to loans purchased through the Purdue School as Lender [“SAL”] program. A campus wide committee of administrators led by our Purchasing area conducted this RFP process. Proposals were evaluated based upon the benefits offered to graduate students who take out these FFELP loans and the demonstrated program earnings from the sale of the loan to a secondary market partner.
Through this competitive bidding process, Sallie Mae was selected as the preferred SAL service partner based upon their proposal. With the Sallie Mae/Purdue partnership, graduate students receive competive borrower benefits and a life-of-loan service commitment. Purdue University earnings received from the sale of loans originated through the SAL program are directed to scholarships for students demonstrating financial need.
As of March 31, 2008, Purdue is no longer offering School as Lender loans
Summary
Purdue University has worked diligently on behalf of our student loan borrowers to assure that each borrower receives the best available loan, and that lending activity operates according to federal regulatory guidelines.
* NOTE: Purdue-West Lafayette has conducted a new FFELP RFP process in late 2007 to select 2008-09 preferred lenders.
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