For many student loan borrowers, the consolidation repayment option offers convenience, a fixed interest rate, lower monthly payments, and a longer repayment term. And for many shouldering a heavier loan burden, like graduate students, or those with a high debt-to-income ratio, consolidation is the only way to successfully manage their debt. But what these students – and the financial aid professionals who help them – may not realize is that they could be consolidating their way right out of some very helpful repayment services.

Financial aid professionals play an important role in educating students who borrow under the Federal Family Education Loan Program (FFELP). Students who borrow under FFELP may have little idea what agency guaranteed their loan – or even what a guarantor does. And in the past, that was acceptable. After all, the guarantor’s traditional role – to insure the education lender against the financial risks of default – typically meant that the student only encountered the guarantor as a collection agent when they failed to repay. Some guarantors do offer front-end origination and disbursement services, but unless students have an excellent memory of whose logo appeared on a loan application, or they keep meticulous records, a guarantor’s name is usually forgotten after the student receives the loan funds.

So What Is Included in a Guarantee?
A lot, it turns out. Guarantors – often thought of as being “backroom” and invisible to the student – really can make a difference in the borrower’s ability to repay. Talking with your guarantor to determine what programs and services are offered to your students will insure that you are aware of what is available in terms of assisting student loan borrowers in their repayment future.

Consolidating Out of Wellness
Financial aid professionals, who dictate the choice of guarantor for their student populations, can and often do select a guarantor specifically for its repayment education and encouragement services. They can rest easy that the guarantor will be there for their students until the loans are paid back, right?

Not necessarily. When students request to consolidate multiple loans, the consolidating lender basically pays off all of the existing loans and creates one new loan. That one new consolidated loan still needs a guarantee, and lenders are free to assign portions of their consolidation portfolios to one or more guarantors, with no requirement that the original guarantor be retained. For student loan borrowers, this means the guarantor you start out with may not be the one you end up with post consolidation. So in essence, borrowers who start off in one guarantor’s portfolio could consolidate immediately upon graduation and lose out on all the benefits of the original guarantee, which could mean an increased risk of default.

Not only are students unaware of what they’re missing out on, but in many cases the financial aid office also may not be aware of the ramifications of consolidation.

Is There a Solution?
Can financial aid professionals influence the choice of guarantor for their students’ consolidated loans? Yes and no. Financial aid and loan officers can have a discussion with their preferred lenders about what happens to their students’ loans after consolidation. In some cases, consolidation volume is handled by a completely separate division from loan origination. It certainly doesn’t hurt for the financial aid officer to ask what happens to their students’ loans should the student loan borrower opt to consolidate.

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Penn Troy is American Student Assistance’s Regional Account Executive for DE-DC-MD. ASA is a nonprofit federal student loan guarantor whose mission is to help students and families manage education debt. ASA recently held a series of one-day Dialogues on the topic of consolidation for financial aid professionals across the country, including the DE-DC-MD area.