The Role of the Guarantor
As a nonprofit federal student loan guarantor, American Student Assistance’s mission is to help students and families successfully manage higher education debt.
Our role includes:
The Evolving Role of the Guarantor through the Years
For over 50 years, American Student Assistance has made college possible for millions through its insurance of student loans. Founded in Massachusetts in 1956 as the first student loan guarantor in the nation, ASA was originally created to make lending to 18-year-old students with no credit history a viable proposition for lenders. Through charity and donations from local businesses, ASA built a reserve fund that would guarantee repayment to lenders in cases of default. Soon other states duplicated the successful ASA model and founded their own state guarantee agency.
In 1965, the Higher Education Act created federal aid for students and a federal student loan program, based on the ASA guarantee model, was born. Federal student loans, although still provided by private lenders, were in essence guaranteed by the federal government. Guarantee agencies became administrators of the federal student loan program on a local level across the country, supporting borrowers, schools and lenders from student loan origination to repayment.
But that was then…
In the 1980s, federal student loan default rates soared past 20%. In fact, back then half of the federal costs associated with the Federal Family Education Loan Program were attributable to collecting past due loans. Congress put into effect several policies to combat default and the guarantor role, out of necessity, evolved into being a collection agency on behalf of the federal government.
This is now…
However, that was 15 years ago, when default threatened our federal aid program. The policies put into place did their job and today, the national default rate stands at just over 5%. There is no longer such a critical need to have a singular focus on hard core collection activities.
But there is a need to help support students as they face larger and larger amounts of education debt. That’s why American Student Assistance champions a new role for the nation’s guarantors, one that better meets the needs of today’s student loan borrower. We believe this public purpose mission, to help students and families successfully manage higher education debt, best benefits students, colleges and universities, education lenders and society as a whole.
