What is a Secondary Market?

In 1976, as demand for student loans outpaced supply, Congress approved bipartisan legislation to address the growing need for student loans.  The legislation, sponsored by then-Senator Lloyd Bentsen (D-TX), authorized the creation of specialized student loan secondary market organizations.

Student loan secondary markets began to immediately provide the liquidity required to meet the country’s growing college financing needs by raising money through the sale of bonds to investors, and using that money to make student loans directly or to acquire them from banks, savings and loans, and credit unions.  This increased access to much-needed financial assistance by allowing financial institutions to make more loans.

Nonprofit and state-based secondary markets continue to fulfill this vital role today as more and more students enter college and the country meets the growing challenges of demographic shifts and a global economy.  In acquiring loans from the original lenders or making the loans themselves, secondary markets assume the long-term servicing and collection responsibilities and share in the risks associated with defaults.  In addition, they establish an ongoing relationship with the borrowers and provide benefits and assistance throughout the life of the loans.

Operating across the United States, the nonprofit student loan providers that comprise the EFC membership play a critical role in ensuring access to loans and providing specialized support and servicing to lenders and schools.  Equally important, EFC members provide abundant services and programs to students and their families.  As the cost of a college education continues to grow, the role of EFC members in driving down the cost of federal student loans becomes ever more crucial.

EFC members serve students and their families by utilizing low-cost financing to reduce students’ borrowing costs.  Click here to read more about nonprofit financing…

Nonprofit student loan providers generally provide the least expensive student loans available by paying federally mandated fees on behalf of students, and by offering interest rates below the standard government rate. These borrower benefits, which are accomplished at no additional cost to the taxpayer, save students and families millions of dollars in interest and fee payments each year. This helps pay for books, computers, housing and other college-related expenses.

As public-purpose, nonprofit organizations, EFC members provide a wide array of support services designed to increase college access.  Some of these programs include early awareness programs beginning in early grades, counseling services, scholarship programs, loan forgiveness programs for teachers, nurses, military personnel, police officers, firefighters, and others, state-sponsored tuition savings plans, and college planning centers.

Responding to Students, Schools & the Community

Benefits to students and their families come from the flexibility of state-based and nonprofit student loan providers.  Programs are tailored to meet the needs of the particular state or community they serve, and the cumulative result of these programs is to provide the least expensive loans available and increase access to and reduce the cost of higher education.

Interest Rate and Student Fee Reduction Programs

EFC members offer a variety of interest rate and fee reductions that provide an upfront and immediate financial benefit to the borrower.  Many waive or reduce loan origination fees for borrowers, providing the student with more loan funds to apply to college costs.

Interest rate discounts are another borrower benefit that virtually all nonprofit and state-based student loan providers offer their borrowers.  These savings may be realized upfront and immediately, or as a result of the borrower agreeing to automatic debit repayment, or by making a certain number of on-time payments.  By taking advantage of these savings, borrowers can greatly reduce the total repayment amount over the life of the loan, thereby reducing the overall cost of college and establishing responsible repayment behavior.

Click here to see the EFC Borrower Benefits Book and learn more about the programs and benefits available from EFC members.

Outreach Services & College Planning

EFC members realize that programs that lower the direct cost of college are only part of the solution.  Consumers also need information, guidance, and encouragement.  Therefore, EFC members deliver extensive outreach and counseling programs that bring professional counselors, materials, and support to area schools, community centers, and the workplace.  They also assist colleges with borrower entrance and exit interviews that explain borrowers’ rights and responsibilities under the federal loan programs.  These activities play a critical role in preventing defaults.  In addition, toll-free help lines and Internet services are provided for students and families.  EFC members offer financial literacy programs that educate borrowers about student loan debt and the impact of debt on one’s future.  Many provide personal finance and debt management education in a variety of media ranging from seminars to counseling sessions to publications, often in print and online.

The college planning programs offer a wide range of early awareness initiatives to assist students and families in preparing and planning for college.  These may include mentoring programs for middle school students to encourage them to stay in school and to reach for a college education; free scholarship searches; support for statewide school assessments testing and remediation; skills assessment and career selection; K-12 early college planning presentations for parents; and financial aid counseling and education materials.   EFC members continue to find innovative and creative ways to reach all communities from the inner-cities to the most rural areas of the country, working with a belief that equal access to education must be available to all.

Loan Forgiveness Programs

EFC members are in the unique position to create student loan forgiveness programs and other innovative strategies that specifically target critical career shortages and areas of high need for the individual states they serve.  These loan forgiveness programs and loan benefits have helped address shortages in a variety of professions, and aided numerous nurses, teachers, veterans, military personnel, dentists, veterinarians, pharmacists, police, and technical professionals – all based on the needs of local communities.

Grant and Scholarship Programs

Many EFC members offer their own scholarship and grant programs or administer such programs on behalf of particular states.  Scholarships and grants are awarded to students based on need and/or merit.  In addition, many EFC members offer free scholarship search services to assist students in finding and applying for a wide variety of scholarships and grants to help them avoid debt whenever possible.

Alternative Loan Programs

EFC members have also created alternative private loan programs that bridge the funding gap when savings, scholarships, grants, federal loans and other resources are not sufficient.  Borrowers attending high cost institutions or pursuing advanced degrees can turn to these loan programs for additional financial help.