Guarantor will have saved borrowers $388 million through fee waiver
USA Funds plans change in guarantee-fee policy effective April 2004
INDIANAPOLIS— USA Funds®, the nation's leading education-loan guarantor, has announced plans to change its guarantee-fee policy effective April 1, 2004. Since May 1999, USA Funds has waived the 1-percent guarantee fee permitted by federal law on Federal Stafford and PLUS loans. Through March 31, 2004, USA Funds projects that this policy will have saved borrowers more than $388 million.
"We have been pleased to offer this benefit to reduce the cost of borrowing for college," said Carl C. Dalstrom, USA Funds president and CEO. "At the same time, we have consistently advised that we could continue to waive the guarantee fee only as long as the policy remained financially feasible and consistent with federal statutory requirements."
By waiving the guarantee fee, USA Funds and other guarantors that offer zero guarantee fees have been depleting their federal reserves. As a result, guarantor reserve ratios — the ratio of reserve dollars to dollars of outstanding loan guarantees — have been declining. Federal law requires guarantors to maintain a minimum reserve ratio.
USA Funds announced that it will continue to waive the guarantee fee on new loans guaranteed prior to April 1, 2004. Thereafter, USA Funds' guarantee-fee policy will be as follows:
-
Effective for new Stafford and PLUS loans guaranteed beginning April 1, 2004, one-half of 1 percent of the principal amount will be deducted as a guarantee fee. For example, a dependent freshman who borrows the maximum of $2,625 guaranteed beginning April 1, 2004, would have $13 deducted from the loan amount as the guarantee fee. All loans guaranteed between May 1, 1999, and March 31, 2004, will continue to qualify for a zero guarantee fee, even if the loans are not fully disbursed until after April 1, 2004.
-
USA Funds will maintain the guarantee fee of one-half of 1 percent for loans guaranteed through the peak loan-processing season for the 2004-2005 academic year.
-
Effective for new Stafford and PLUS loans guaranteed beginning Nov. 1, 2004, a guarantee fee of 1 percent will be deducted from the principal amount. For example, a dependent freshman who borrows the maximum of $2,625 guaranteed beginning Nov. 1, 2004, would have $26 deducted from the loan amount as the guarantee fee. All loans guaranteed between May 1, 1999, and Oct. 31, 2004, will continue to qualify for a zero or reduced guarantee fee, depending on when they were guaranteed, even if the loans are not fully disbursed until after Nov. 1, 2004.
In announcing the policy change, Dalstrom reported that, because the financial structures supporting most guarantors are similar, USA Funds believes that, in the near future, other guarantors will be announcing reinstatement of their guarantee fees. "We believe that all guarantors ultimately will charge a guarantee fee," Dalstrom said.
Loan-guarantee fees are a long-standing and integral component of the Federal Family Education Loan Program (FFELP), the largest federal source of student financial aid. Revenue from the guarantee fee is deposited in the guarantor's federal reserve fund, which is a federally owned asset managed by the guarantor, to pay lender claims in case a borrower defaults and to fund the guarantor's default-prevention efforts.
"We're taking this action to meet federal requirements and so that we can continue to deliver the finest education-loan services to the lenders, postsecondary institutions, students and parents who rely on USA Funds," Dalstrom said. "Although the guarantee fee adds nominally to a borrower's cost of attendance, we believe that the value that USA Funds delivers to schools and their students greatly exceeds the cost of the guarantee fee."