Guaranty agencies are state or private nonprofit agencies that administer the federal guaranteed loan program. The agencies insure federal student loans against default and pay off lenders when borrowers default. They also try to collect from borrowers.
Guaranty agencies are non-profit groups that contract with the federal government. They are essentially middlemen between the private lender and the federal government. The guarantee agency will pay the bank for the defaulted loan, and the federal government then reimburses the guarantee agency. The guarantee agency then attempts to collect on the loan.