Claim: Definition and What It Is
When relating to student loans, a claim is a formal request submitted by a lender to a guaranty agency or insurer seeking reimbursement after borrower default. This process was more common under the Federal Family Education Loan (FFEL) Program, where private lenders originated federally backed loans and were protected against default losses via federal guarantees.
When a borrower defaulted on a FFEL loan, the lender could file a claim with the guaranty agency to recover the balance. The agency would reimburse the lender and then take over collection from the borrower. Under the current Direct Loan program, the federal government is both lender and insurer, so the claim process as it applied to FFEL is largely historical.
Why it Matters
Borrowers with older FFEL loans may have had their debt transferred to a guaranty agency after a default claim was paid. In that case, the borrower's debt is now held by the guaranty agency, not the original lender, and collection efforts come from a different source. Understanding this matters when trying to locate who currently holds a defaulted loan and who has the authority to discuss resolution options.
The federal consolidation loan options article on Yrefy's blog covers how older FFEL loans fit into the current federal repayment landscape. Borrowers dealing with guaranty agency collection should also review options through the Department of Education's default resolution channels.
Example
A borrower defaults on a $15,000 FFEL loan originated by a bank in 2005. The bank files a default claim with the state guaranty agency. The agency pays the bank and takes over ownership of the debt. The borrower now owes the guaranty agency, and they begin collections. They are also now responsible for reporting the default to credit bureaus and pursuing wage garnishment if the account remains unresolved.
