One of the most frustrating things about student loans is that sometimes it seems as though there are a dozen different companies or entities involved in one, single loan. When you have multiple student loans, each with multiple companies involved in one way or another, figuring it all out can be a bit… tedious. Understanding the roles that different entities play in the student loan world might be helpful, so let me try to de-mystify things a bit.
Lender. The lender is the original entity that actually gave you the student loan. You borrowed from the lender, you signed a promissory note issued by the lender, and you have to repay the lender. For private loans, the original lender could be a private company (such as a bank), or it could be a quasi-public student loan agency that issues state-based student loans. For federal loans, the original lender could be the U.S. Department of Education (if you have Direct federal loans), or could be a private entity (such as a bank) is you have a FFEL federal loan, which is a federal student loan guaranteed by the federal government (as opposed to directly lent by the federal government… read below for more info on FFEL loans).
Guarantor. Up until 2010, many federal loans were issued via the FFEL program, where private commercial lenders (i.e., banks) issued federally-guaranteed loans. An act of Congress in 2010 eliminated the FFEL program, so now all federal loans are issued directly by the U.S. Department of Education’s Direct lending program. If you were in school prior to 2010, however, you may have FFEL loans. FFEL loans worked like this: a private entity lent you the money, and if you ever default on that loan, the loan is “guaranteed” (or “insured”) by a state agency or non-profit organization. The “guarantor” is that insurance agency. So, as an example: you may have been issued a FFEL federal student loan in 2009 by, let’s say, Sallie Mae. If you default on that loan, the guarantor essentially provides “insurance” to Sallie Mae, so Sallie Mae gets paid by the guarantor. You then owe the guarantor, not Sallie Mae. Guarantors are, in turn, insured by the federal government.