New Report on Federal Student Loan Guaranty Agencies

In February, President Obama proposed eliminating the Federal Family Education Loan (FFEL) Program and shifting all new federal student loans to the Direct Loan Program. Both programs provide the same loans to student borrowers (i.e. Stafford loans), although they are administered in different ways. While media coverage has focused on the lenders that operate the FFEL Program, federal student loan guaranty agencies have been largely ignored. Guaranty agencies are private non-profit or state government entities that administer federal insurance and collect on defaulted student loans. Yet any significant changes to the FFEL Program will affect these little-understood entities.

To help inform the debate on federal student loan reform, the New America Foundation’s Education Policy Program today released “Rethinking the Middleman,” a policy paper that provides an overview of the history and current responsibilities of guaranty agencies, a critical analysis of the federal payments these entities receive, and recommendations for reforms.

The paper includes the following:

• The history of guaranty agencies and how their roles have changed and evolved over time;
• How federal payments to guaranty agencies work at cross purposes and can undermine policy goals;
• The negative consequences of affiliations between guaranty agencies and student loan companies for borrowers and FFEL Program integrity; and
• Options for policymakers to reform these agencies.

The full report is available here.