American Student Assistance's Journey

Traditionally, federal student loan guarantors like American Student Assistance® (ASA) administered the federal insurance on student loans and received federal funding for portfolio maintenance, default aversion, and the recovery of defaulted student loans.

However, under the standard guarantor model, more than 60% of guarantor revenue came from student loan default. So, guarantors received more monetary compensation for defaulted loan collection than from preventing the delinquency to occur in the first place.

This meant that if a guarantor carried out its public purpose mission of assisting borrowers in successfully managing their higher education debt, the organization’s revenue streams actually suffered.

The Creation of the Voluntary Flexible Agreement

ASA®  has long thought that the traditional guarantor model described above had a perverse incentive structure. We believed that a guarantor’s primary responsibility was not to administer insurance and collect defaults, but to help students keep their education loans in good standing. As the only entity involved with a student loan from origination to last monthly payment, guarantors were uniquely suited to this task. In the 1990s, ASA and other 
like-minded guarantors began to advocate for a new guarantor business model.

On March 23, 2001, the U.S. Department of Education signed ASA’s Voluntary Flexible Agreement (VFA). The VFA enabled Federal Family Education Loan Program (FFELP) guarantors to develop programs and techniques to help borrowers avoid student loan default and all of its negative consequences. These new agreements tested “new and innovative methods for carrying out the types of activities required of guaranty agencies to identify and demonstrate more efficient and effective means to manage the FFEL program.”*

Under the VFA, ASA implemented several student loan WellnessSM research programs: a blend of proactive print, Web, e-mail, and telephone communications targeted to at-risk borrowers at particular decision points along the loan cycle. The research proved that Wellness works and can have a dramatic impact on borrower’s repayment habits.

Looking Ahead

With the elimination of the FFELP, federal student loans no longer need to be “guaranteed.” However, more than ever before, student loan borrowers need the critical debt management services that ASA provides. We believe that federal funding for education debt management and delinquency prevention services must be a public policy priority in order to position college students for a sound financial future. 

*(Source: 2003 Interim Report to Congress: Impact of VFA’s in the FFELP, U.S. Department of Education)