If a borrower defaults on an educational loan, the guarantee agency assumes responsibility for collecting the loan and repays the lender, usually at 95 cents on the dollar. This means that guaranteed educational loans are extremely low-risk loans for the lender, despite being unsecured. Each state has a different guarantee agency that administers the Federal Stafford and PLUS loans for students in that state. There are 41 guarantee agencies for educational loans in the United States. Most financial aid programs require that the student be enrolled at least half-time to be eligible for aid.
Some programs require the student to be enrolled full-time.
The holder is the lender, institution, or agency that holds legal title to a loan. The holder may be the bank that issued the loan, a secondary market that purchased the loan from the bank, or a guarantee agency if the borrower defaulted on the loan. Interest Interest is an amount charged to the borrower for the privilege of using the lender's money. Interest is usually calculated as a percentage of the principal balance of the loan. The percentage rate may be fixed for the life of the loan, or it may be variable, depending on the terms of the loan.