Who Are the Lenders, Holders, and Servicers?

Private Lenders
Prior to the credit crunch of 2008, most of the major consumer banks in the United States offered private loan programs, including Citibank, Bank of America, JPMorgan Chase and KeyBank. As of fall, 2008, only Bank of America had completely shut off private loans. The other three had significantly raised their credit requirements. There are literally hundreds of smaller banks who market private student loans to their regular customers or fund private student loans that are sold through marketing companies. It is very rare for the lender to be an entity other than a bank, because only banks have the ability to offer uniform products on a nationwide basis. On the other hand, it is less common that the bank will continue to hold your loan through repayment.

Student Loan Holders
Some large financial institutions may elect to keep ownership of your student loan for a period of time. Virtually all other education lenders have historically used a process known as "securitization" to transfer ownership of your education loan to an investment vehicle and receive a portion of the value of your loan in a lump sum in advance. In other words, your original lender sells your loan to other entity, who then becomes the owner or holder of your loan. Securitization should not affect you, so long as your rights are set out in your credit agreement with the original lender and your loan is designed to stay with the same loan servicer from first payment until last.

Effect of the "Credit Crunch" of 2008 - 2009
Prior to September 2007, private student loans made by bank lenders were almost always sold into securitizations. In the fall of 2007, the subprime disruption in the mortgage market spread to student lending, shutting down securitizations for private student loans. As of October 2008, the market is still closed. As a result, many lenders have shut down their programs. Others have significantly increased their minimum FICO scores, increased loan rates and fees, and cut back on the schools they will finance. As a result, the shopping process we recommend is even more important to locate the few remaining programs.

Private Loan Servicers
Your private loan may be serviced by the financial institution that originally funded it. It is more common, however, for the loan to be serviced by one of the national student loan servicing companies who handle both federal loans and private loans. There are a large number of these servicers, including many of the state agencies that guaranty government loans. Some of the largest are American Educational Services (AES), Great Lakes Servicing, and ACS. The role of the servicer is simply to tell you what you owe and collect your money monthly and send it to the loan holder. The servicer should also provide you with access to information about your loan history and your loan documents. The servicer will follow rules set out by the lender for questions like deferment and forbearance. The servicer usually does not have authority to make major changes in your loan terms.