Michigan Guaranty Agency: Refinancing Loans Explained

The Michigan Guaranty Agency (MGA) is a component of the Michigan Higher Education Assistance Authority (MHEAA) and was established by Michigan Public Act 77 of 1960. The MGA administers the Federal Family Education Loan Program (FFELP) and guarantees the purchase of defaulted loans from FFELP lenders across Michigan. The FFELP includes the Subsidized Federal Stafford Loan Program, the Unsubsidized Federal Stafford Loan Program, the Federal PLUS Loan Program, and the Federal Consolidation Loan Program. While the MGA does not refinance loans, it does provide loan repayment options to help borrowers avoid delinquency and default. Additionally, in 2023, Michigan veterans received over $1.8 million to help them purchase or refinance their homes through VA-guaranteed loans.

Federal Family Education Loan Program (FFELP)

The Federal Family Education Loan Program (FFELP) was a loan program that included the Federal Stafford Loan, Federal PLUS, Federal Supplemental Loans for Students (Federal SLS), and Federal Consolidation Loan programs. Lenders used their own funds to make loans to enable students or their parents to pay for the students' attendance at eligible institutions. The FFELP offered four types of loans: subsidized Federal Stafford Loans, unsubsidized Federal Stafford loans, the Federal PLUS Loan for graduate students and for parents of dependent undergraduate students, and consolidation loans. The main federal student loan is the Stafford Loan, with two types available: subsidized and unsubsidized.

The Michigan Guaranty Agency (MGA) is a federally designated guarantor of FFELP loans. It does so by purchasing defaulted loans from FFELP lenders across Michigan. During its nearly 45-year history with the FFELP, the MGA has guaranteed over $14 billion in loans. Beginning July 1, 2010, no new loans have been guaranteed under the FFELP, and the program was ended according to the provisions of the Student Aid and Fiscal Responsibility Act, which passed in 2010 as a rider bill to the Health Care and Education Reconciliation Act of 2010. However, the MGA still has $4 billion in outstanding loans that it must monitor and process.

FFEL Program loans are not eligible for the Public Service Loan Forgiveness (PSLF) program because they are private loans. However, FFEL borrowers can gain access to loan forgiveness by consolidating existing loans with the Federal Direct Student Loan Program. Normally, payments made before consolidating do not count toward loan forgiveness, but under a new limited waiver announced on October 6, 2021, by the Department of Education, FFEL loans can now be consolidated with previous payments made before consolidation, considered qualifying payments.

Most FFEL Program loans are eligible for only one income-driven repayment (IDR) plan. However, borrowers can get more IDR options if they consolidate their FFEL Program loans into a Direct Consolidation Loan. IDR plans base loan payments on income and family size, and these plans often provide lower monthly payments. It is important to note that consolidating a FFEL PLUS loan made to parents may result in eligibility only for the Income-Contingent Repayment Plan, depending on the specific loan situation. Consolidation changes the interest rate, so borrowers may end up paying more in interest over time.

Federal Stafford Loan Program

The Federal Stafford Loan Program is a government-issued loan program that helps students finance their college education. The program offers both subsidized and unsubsidized loans, which means that the government may pay the interest on the loan while the borrower is in school or during a period of deferment or forbearance.

To be eligible for a Federal Stafford Loan, borrowers must:

• Be enrolled at least half-time in an eligible degree or certificate program.
• Have received a high school diploma or its equivalent.
• Not be in default on any existing federal student loans.
• Meet the general eligibility requirements for federal student aid, including submitting the FAFSA® (Free Application for Federal Student Aid) each year.

The amount that can be borrowed through the Federal Stafford Loan Program depends on the cost of attendance and other financial aid received by the student. The school determines the loan amount, which can be up to $7,500 per year and up to $31,000 in a borrower's lifetime.

It is important to note that the maximum eligibility period for subsidized Stafford loans is 150% of the published length of the degree program. For example, if a degree program is four years long, the borrower will have six years to borrow this type of loan.

The Michigan Guaranty Agency (MGA) is a federally designated guarantor of the Federal Family Education Loan Program (FFELP), which includes the Federal Stafford Loan Program. The MGA guarantees the purchase of defaulted loans from FFELP lenders across Michigan. However, as of July 1, 2010, no new loans are guaranteed under the FFELP. All new Stafford Loans will come directly from the U.S. Department of Education under the Federal Direct Loan Program (FDLP).

Federal PLUS Loan Program

The Federal PLUS Loan Program is a type of federal student loan for parents and graduate students. PLUS Loans are part of the Federal Direct Loan program, but they function differently from other Direct loans. They tend to be significantly more expensive than other federal student loans, with higher interest rates and disbursement fees. For instance, as of the 2023-2024 academic year, Direct Subsidized and Unsubsidized loans for undergraduate students are at 5.50%, with a disbursement fee of 1.057% of the loan amount. In contrast, PLUS Loans have a current rate of 8.05% and a disbursement fee of 4.228% of the loan amount.

The Federal PLUS Loan Program is administered by the Michigan Guaranty Agency (MGA) as part of the Federal Family Education Loan Program (FFELP). The MGA guarantees the purchase of defaulted loans from FFELP lenders across Michigan. While the FFELP program ended on July 1, 2010, the MGA still manages $4 billion in outstanding loans.

Parents often want to defer payments while their child is in school. The Federal PLUS loan program allows for deferment only when the student is enrolled at least half-time. There is no penalty for early repayment, but there are significant restrictions on borrowing from your retirement plan. If the loan is not repaid on time, it can lead to severe tax penalties. Interest paid on the loan is also not tax deductible.

To apply for a PLUS Loan, borrowers can log onto Studentaid.gov using their FSA ID and password. This initiates the credit check process and directs new borrowers to complete a Master Promissory Note (MPN), a legal document in which the borrower promises to repay the loan and any accrued interest and fees to the U.S. Department of Education. The MPN also outlines the loan's terms and conditions.

Federal Consolidation Loan Program

The Michigan Guaranty Agency (MGA) is a component of the Michigan Higher Education Assistance Authority (MHEAA). It was established by Michigan Public Act 77 of 1960. The MGA operates guarantees for three loan programs:

• Subsidized and unsubsidized Federal Stafford loans
• Federal PLUS loans
• Federal Consolidation loans

The Federal Consolidation Loan Program is one of the programs administered by the Michigan Guaranty Agency (MGA) as part of the Federal Family Education Loan Program (FFELP). The MGA guarantees the purchase of defaulted loans from FFELP lenders across Michigan. The FFELP includes the following programs:

• Subsidized Federal Stafford Loan Program
• Unsubsidized Federal Stafford Loan Program
• Federal PLUS Loan Program
• Federal Consolidation Loan Program

The Health Care and Education Reconciliation Act of 2010 eliminated new lending under the FFELP as of July 1, 2010. All new Consolidation Loans now come directly from the U.S. Department of Education under the Federal Direct Loan Program (FDLP). Existing FFELP borrowers have several repayment options to avoid delinquency and default.

Michigan Higher Education Assistance Authority (MHEAA)

The Michigan Higher Education Assistance Authority (MHEAA) was established in 1960 by the State of Michigan through Public Act 77. The Michigan Guaranty Agency (MGA) is a significant component of the MHEAA. MHEAA-MGA primarily supports Michigan students by insuring lenders who provide federal student loans, guaranteeing reimbursement for their good-faith lending.

MGA is a federally designated guarantor of the Federal Family Education Loan Program (FFELP), which includes:

• The Subsidized Federal Stafford Loan Program
• The Unsubsidized Federal Stafford Loan Program
• The Federal PLUS Loan Program
• The Federal Consolidation Loan Program

MGA guarantees these loans by purchasing defaulted loans from FFELP lenders across Michigan. Over its nearly 45-year history with the FFELP, the MGA has guaranteed over $14 billion in loans. However, as of July 1, 2010, no new loans are being guaranteed under the FFELP due to the Health Care and Education Reconciliation Act of 2010. MGA still has $4 billion in outstanding loans that require monitoring and claims processing.

MHEAA is a body corporate and politic within the Michigan Department of Treasury. Its 15 members are appointed by the Governor of Michigan, with the advice and consent of the Michigan Senate. The members include representatives from the Michigan education and lending communities, as well as the public. MHEAA-MGA operates under the guidelines established by the Higher Education Act of 1965 and adheres to all associated federal guidelines.

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