Knowing who the participants are and the role they play in providing you with educational financing will help you understand the repayment process. Listed below are participants with whom you became acquainted on the day you applied for your loans and with whom you will continue to be in contact with until the day your loans are paid in full.
The holder is any organization that owns your loans. The holder may be the original lender from which your loans were borrowed or it may be the secondary market that bought your loans. The organization that buys the loans, thereby taking ownership of the promissory notes, is now the holder of the loans. As the borrower, your obligation is to repay the loans to the holder of the loans - that is, to the organization that holds the promissory notes.
Lenders generally do not provide unsecured loans without an organization to guarantee repayment should default occur. In many cases, the guarantee agency also processes your loans and sends the loan proceeds to your school’s financial aid office. For these reasons, an ‘origination fee’ may have been deducted from the principal amount at the time you borrowed your loans. If the guarantor of one of your loans contacts you, respond immediately because your loans may be going into default.
Some lenders and holders service their own loans. Many holders hire companies to do the servicing for them. These companies are called loan servicers or servicing agencies. Certain activities, such as billing for repayment, processing deferment forms or requests for forbearance and sending out notices to borrowers about the status of loans are performed by "loan servicers." When a holder uses a loan servicer, the borrower sends repayment checks, deferment forms, requests for forbearance and other correspondence to the loan servicer, which represents the holder. The servicer is the most important player involved with your student loans. KNOW YOUR SERVICER!
An organization that buys loans from original lenders and other holders is called a secondary market. By purchasing a loan the secondary market becomes the new holder of that loan
*Please note: All terms in bold/italic appear on our Glossary page.