Strong default-prevention, default-recovery results permit fee waiver
USA Funds to offer zero guarantee fee beginning April 1
INDIANAPOLIS — USA Funds®, the nation's leading education-loan guarantor, announces that it will offer a zero guarantee fee on Federal Stafford and PLUS loans that it guarantees beginning April 1. The USA Funds board of trustees has approved the zero-guarantee fee based on a thorough review of USA Funds' financial condition and the recommendation of USA Funds' management.
"We are able to waive the guarantee fee because of better-than-expected performance in our default-prevention and default-recovery activities during the past year," said Carl C. Dalstrom, USA Funds president and CEO. "We look forward to saving education-loan borrowers the costs of these fees while meeting our commitment to the federal government to maintain the financial integrity of the reserve funds that we manage."
USA Funds' 2004 annual default rate of 1.13 percent was nearly 18-percent lower than the rate for the previous year. In addition, the nearly $1.1 billion that USA Funds recovered on behalf of taxpayers on loan defaults last year was approximately 14-percent more than USA Funds previously projected. Both factors have helped to relieve pressure on USA Funds' federal reserve fund. USA Funds has assessed a 0.5-percent guarantee fee since April 1, 2004, to ensure sufficient reserves to meet federal requirements.
In addition, USA Funds is pursuing a voluntary flexible agreement with the U.S. Department of Education. The financial structure of the proposed VFA would permit USA Funds to waive the guarantee fee.
USA Funds will continue to waive the guarantee fee as long as statutory and regulatory requirements and the financial condition of its federal reserve fund permit.
Federal law permits guarantors to charge a guarantee fee of up to 1 percent as an insurance premium on each education loan that they guarantee. Guarantee-fee revenue is used to pay lenders in case of loan defaults and to support the guarantor's default-prevention efforts.
"Our customers have advised us that they highly value the superior products and services that they receive from USA Funds, and we have taken this opportunity to further enhance that value by waiving the guarantee fee," Dalstrom said. "We have worked diligently to offer this solution, which provides lower-cost loans to borrowers while maintaining the financial integrity of our loan program."