The schools are in charge of dispersing the money. The federal government pays them and they apply it to the class or term. If there is leftover, it is sent to the student. When a student leaves school, graduates or quits, the loan is turned over to a processor--Great Lakes is the one used most. There is no 'bank' involved. The loan is a contract with the federal government, hence if the student fails to pay, the long arm of the federal government will reach out and touch someone. Student loans cannot be filed in any type of bankruptcy either.