Student Loan Guarantor

A guarantor refers to a person or agency which agrees to pay somebody else's debt in case, he or she defaults on a loan. In case of student loans in United States, it is the government that acts as guarantor in regard to the federal loans borrowed by the student. The federal student loans have been at a much lower risk I comparison to other unsecured loans, as they have been extended by a lending institution with the guarantee by the Federal government.

As it is, loan guarantors can be state-run, as well as private organizations, who are in charge of administration of the Federal Family Education Loan Program, which subsidizes the participating student lenders. The borrowers usually pay a default fee of one percent, which is collected after every disbursement to guarantee agency, so as to cover the costs of getting the loan insured, although some agencies would waive off this fee.

Student loan applicants usually use a guarantor in case they feel that they would be unable to secure a loan all by themselves. So, in case the applicant is suffering from poor or no credit history, then a guarantor can play a very vital role. The use of guarantor does not imply that a loan application would automatically be approved, as the guarantor is considered to be part of loan application and hence its credit would be evaluated along with other applicants. In case the lending institutions feel that a guarantor would not be able to repay the debt, then the loan would not be approved.

In cases where multiple guarantors are involved, generally, every party is liable for the total amount of debt. In case, a borrower defaults in the payment of the student loan, then the guarantee agency would pay the lending institution a major portion of the remaining balance on the loan. In case a guarantor is forced into payment for a loan default, then he is responsible for the collection of the residual balance from the debtor.

There are a few well known private, non-profit corporations which have been designated for administering the Federal Family Education Loan Program in the United States. Guarantor States Serviced, American Education Services/PHEAA, American Student Assistance, College Assist Colorado, Connecticut Student Loan Foundation, EDFUND California, Education Assistance Corporation, Educational Credit Management Corporation (Oregon), Educational Credit Management Corporation (Virginia), Finance Authority of Maine, Georgia Student Finance Commission, Great Lakes Higher Education Corporation, Higher Education Student Assistance Authority (New Jersey), Illinois Student Assistance Commission, Iowa College Student Aid Commission, Kentucky Higher Education Assistance Authority and Louisiana Office of Student Financial Assistance are some of the big names in this regard.