Student Loan Corporation

By: EconomyWatch Content   Date: 30 November 2009

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A Student Loan Corporation is a non profit organization that provides support for front line student lenders, including the federal government and private lenders. Many Student Loan Corporations are specifically attached to state funded loan programs. For example, the Kentucky Higher Education Student Loan Corporation is non-profit student loan processing service that works directly for the Kentucky state government.

Most Student Loan Corporations offer a range of other services, such as information related to savings plans, advice on choosing and applying for various types of student loans, loan repayment information, how to leverage the loan interest for student loan tax credits and even options for applying for student consolidation loans. 

Student Loan Corporation’s Role in FFELP

A Student Loan Corporation plays a key role in the functioning and implementation of the Federal Family Education Loan Program (FFELP) program. The loans under this government-sponsored program are made through a public/private relationship.

Under the program, individual schools determine the eligibility of the student and parent applicants for a loan. Private lenders, such as the local banks or credit unions, provide the funds for the loan. While a student loan corporation guarantees the loans, the federal government subsidizes and reinsures the loans.

A Student Loan Corporation guarantees the loans after reviewing the various loan applications, identifies the students who are eligible and monitors the loan status from time to time. In case a student is unable to repay the loan, the student loan agency pays the claims of the lenders. 

Types of Loans Offered by a Student Loan Corporation

A Student Loan Corporation offers the following loans to college students and their parents:

  • The Subsidized Federal Stafford Loan: This is a need-based federally guaranteed loan for the students. Repayment begins six months after a student leaves school or drops below the half time status.

  • The Unsubsidized Federal Stafford Loan: This is a federally guaranteed loan not based on need.

  • Federal Plus Loans for Parents and Graduate Students: This category of loan requires a credit check and the repayment begins 45-60 days after the disbursement of the loan.

In recent years, several private banks, such as Citibank, have become involved in the student loan business and established student loan corporations.


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