What Are Guaranteed Student Loans?

Guaranteed student loans have the backing of a government treasury if the primary borrower defaults. These loans may be issued by the federal government or by an individual state. If the borrower cannot repay a debt, the government purchases the loan from the lender and works the issue out directly with the borrower.


Borrowers benefit from these loans because they come with lower limits than traditional student loans. Lenders are not taking on as great a risk if the government promises to make sure the money is paid. Low interest rates, low down payments and low financing fees may all be part of the guaranteed loan program.


To qualify for a guaranteed loan, a borrower must be credit worthy. Further, these loans typically come with lower limits because the government does not want to risk losing money to a default. The loans must be applied directly to education expenses, and most will only pay for tuition, not books or room and board. Failure to repay the loans does not go unpunished. Even if the government guarantees a loan, the original borrower's credit is on the line in the case of default. The borrower in default will also owe money to the government, which can be very hard to negotiate in the future.

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