Federal Default Fee

Information about Federal Loan Fees

What is the Federal Default Fee?

The Federal Default Fee is a fee (one percent of the loan amount) that must be charged and deposited to the Federal Fund held by each guaranty agency in the FFELP (Federal Family Education Loan Program) program. It may be deducted from the proceeds of the loan or paid by other non-federal sources.

For example, the Federal Default Fee for a $3,000 loan is $30.

How does a guaranty agency use the default fee?

A guaranty agency guarantees FFELP loans. The 35 guaranty agencies in the United States contract with the U.S. Department of Education to administer the FFELP program on behalf of the Federal Government.

The default fee is deposited into the guaranty agency’s Federal Fund, which is owned by the Federal Government. This fund is used:

• to help borrowers having difficulty with repayment by advising them of their rights to deferments and forbearance, working with borrowers to get a more manageable repayment plan, and providing other tools to help borrowers solve their repayment difficulties;
• to reimburse lenders if borrowers default; and
• for operational costs of the FFELP program.
  

It is vitally important to all students that the student loan program continues to be strong, both financially and operationally. This fee helps ensure that a strong student loan program remains available to students now and in the future.

Why choose to borrow through a guaranty agency or lender that charges a 1 percent fee as compared to borrowing through a guaranty agency or lender that does not charge the 1 percent fee?

Just as in any other purchase or investment that you make, there are many considerations that come into play. Of course, price is a factor. But other factors include the level of customer care that you receive, the ease of reaching someone to assist you if you have questions or run into difficulty, and any other previous relationship you have had with the lender or guaranty agency.