Federal Default Fee FAQs
Frequently Asked Questions About the Federal Default Fee
1. Does NSLP charge a federal default fee? Does the borrower
have to pay it?
Beginning with all Stafford, Grad Plus and Parent PLUS loans
guaranteed on or after February 1, 2008, NSLP will reduce it’s
default fee to collect ½ percent instead of the required 1 percent
fee.
2. What should financial aid administrators consider when
choosing a guarantor?
Don’t compare guarantors based only on up-front default fee
reductions or waivers. For a typical $3,500 student loan, the
borrower’s ½ percent default fee is only $17.50. This fee helps
offset default costs for all borrowers and maintains the Federal
Family Education Loan Program. When selecting a guarantor,
financial aid administrators should compare the whole realm of
services and products offered by the guarantor. NSLP provides many
long-term benefits for schools and borrowers throughout the life of
a student loan, including top-notch customer service, training,
financial literacy programs, and default prevention services
detailed below in “Why should schools and lenders continue to work
with NSLP?”
3. Why is NSLP collecting a ½ percent default fee when
other guarantors are collecting 1 percent and some are not
collecting a fee at all?
Collecting the default fee assures the long-term viability of NSLP
and the Federal Family Education Loan Program. The federal default
fee is an integral part of the program. The fee, along with the
guarantor’s accumulated reserves, is used to reimburse lenders when
a borrower defaults and can’t repay a student loan. This
reimbursement “guarantee” is what encourages lenders to make
low-interest loans to college students without a credit check or
collateral.
When deciding what fee to collect, guarantors must consider whether
to use their reserve funds to pay the fee. Depleting these reserves
may weaken their financial stability, adversely impact their
ability to provide value-added products and services, and
negatively affect the overall student loan program.
At NSLP, collecting a portion of the default fee ensures we will
have sufficient resources to continue to provide our customers with
high-quality products and services to effectively guarantee loans,
provide premiere financial literacy education to our borrowers, and
prevent defaults.
4. What does NSLP do with the 1 percent federal default
fee?
The law requires the fee to be deposited into a federally-owned
reserve fund that can be used only to pay lenders for student loan
defaults and to pay the guarantor for successful default prevention
activities. Every guarantor must deposit the 1 percent fee on every
Stafford and PLUS loan that is guaranteed.
5. How does NSLP prevent loan defaults?
NSLP offers a variety of products and services to prevent
defaults. These “tools” support and complement default prevention
activities by lenders, servicers, and schools. From providing
pre-borrowing information, resources, and counseling through
repayment of the loan, NSLP offers default prevention assistance
that goes above and beyond the minimum federal requirements. Some
of these “tools” include:
- Financial literacy training and resources NSLP provides a variety of on-campus personal financial management presentations; online financial management courses; ready-to-use kits and step-by-step guides for teaching students money management skills, as well as many other online resources.
- Loan counseling tools In addition to a full range of entrance and exit counseling tools, NSLP provides counseling support for schools that includes presentations, brochures and informational documents. Our online Loan Summary gives students an easily accessible look at their loans in a convenient, easy-to-read format.
- Delinquent borrower assistance If a FFELP loan is delinquent, NSLP contacts the borrower to encourage them to repay their loans.
- Extended exit counseling NSLP’s “extended exit counseling” program contacts Stafford borrowers by e-mail during their 6-month grace period to remind them of their repayment obligation.
- Default Aversion Assistance Report (DAAR) This
tool allows NSLP’s schools to take an active, hands-on approach to
helping prevent defaults. Updated weekly, it allows schools to
easily choose which borrowers to contact, as well as providing
borrower contact information and letter and label generation to
facilitate an easy contact process. Tracking reports help schools
manage borrower follow-up.
- Default Rescue Program NSLP personally contacts seriously delinquent borrowers before paying the lender a defaulted loan claim, then helps the borrower work with their lender to avoid default.
6. Why should schools and lenders continue to work with
NSLP?
In addition to guaranteeing loans, preventing defaults, and paying
default claims to lenders, NSLP offers many other value-added
products and services for students, schools and lenders,
including:
- Training NSLP provides free training for schools and lenders on FFELP and NSLP’s products and services. Training is offered one-on-one, on-site, by conference call and webcast, in regional workshops or in conjunction with conferences.
- Compliance assistance NSLP helps schools and lenders avoid FFELP compliance problems by providing fast, accurate answers with our online Ask Policy. Through our Compliance Assistance Program, schools can request a free FFELP audit conducted by our expert compliance consultants.
- Streamlined loan processing and maintenance NSLP’s blanket guarantee and electronic loan processing products, ELITE and EASI-App, allow schools and lenders to eliminate unnecessary paperwork and accelerate the delivery of loan proceeds to students. NSLP is a member of ELM Resources, the National Student Clearinghouse, Mapping Your Future, Meteor, Common Manual and CommonLine/CommonRecord -- industry groups that provide free services to schools and help make student loan administration hassle-free.
- Financial aid organization support NSLP provides resources and personnel to support many state, regional, and national financial aid conferences and workshops and financial aid organizations throughout the country.
- Newsbriefs and Research Review These electronic NSLP publications keep schools and lenders up-to-date on the latest student loan program changes, proposals, and research.
For more information about NSLP, the federal default fee, or any of our products and services, contact NSLP Customer Service at 800-735-8778, ext. 6300, e-mail nslpcs@nslp.org or contact your NSLP Regional Director.
Updated July 2009
