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Glossary
Here are some terms you may encounter as you work through your financial aid needs.
Accrued Interest
Interest that accumulates on the loan and is payable by the borrower or federal government. On a simple interest loan, each day interest is calculated on the unpaid principal balance and becomes accrued interest.
Amortization
Gradually reducing the loan amount to zero through regularly scheduled payments of principal and interest spread over a predetermined length of time.
Borrower
An individual who obtains money from a lending institution/creditor via an extension of credit for a period of time. The borrower signs a promissory note or other form of agreement as evidence of the debt.
Cancellation
Unlike other consumer loans, the balance of an education loan may be canceled upon death or disability of the borrower. Or, if funds were never disbursed on the loan, funds will be returned to the lender and the loan is considered cancelled. Also if the loan is repaid within 120 days or the check is not cashed within 120 days, the loan is considered cancelled.
Capitalized Interest
Interest added to the principal amount. When this is done, the principal amount and monthly payments are increased during the repayment period, since you are paying interest on interest.
Claim
A loan can be purchased from a lender by a guarantor for reason of default, bankruptcy, death or disability.
Collection Agency
A company that attempts to collect delinquent or defaulted loans.
Consolidation Loan
Loan consolidation is designed to help students simplify loan repayment by allowing the borrower to consolidate several types of federal student loans with various repayment schedules into one loan. Students who have more than one loan may find that a Consolidation Loan simplifies repayment since you only make one payment per month, and the interest rate on the Consolidation Loan may be lower than that of one or more of your loans. Most federal loans can be consolidated into a Consolidation Loan. After graduation, students should review the consolidation guidelines to determine if it would be appropriate to consolidate their loans. Loan Programs Eligible for Consolidation: Stafford – (formerly GSL), GSL – Guaranteed Student Loan, SLS – Supplemental Loan for Students, NDSL – National Direct/Defense Student Loan, Perkins – (formerly NDSL), FISL – Federally Insured Student Loan, ALAS – Auxiliary Loans to Assist Student Program (Sometimes called Student PLUS), HPSL – Health Professions Student Loan, PLUS – Parent Loan for Undergraduate Students, HEAL – Health Education Alternative Loan
Co-signer
When a borrower has insufficient collateral or credit history, a creditworthy individual may be required to sign a guaranty of the promissory note for a loan. This individual, called a Co-signer, guarantees that the loan will be repaid if the borrower defaults.
Credit Rating
A rating that is based on an evaluation of one's credit risk, based on past records of debt repayment.
Credit Reporting Agency (Or Credit Bureau)
An agency that collects and distributes credit and personal information to creditors. A credit report includes payment history on loans and other credit accounts (such as credit cards), account balances, and length and place of employment. Any default information on education loans appears on a credit report for as long as seven years.
Creditworthiness
This is determined by the creditor based up the particular loan program. It basically means the requirements which must be met for such a loan. Naturally, a good credit history tends to be a factor in meeting those requirements.
Default
The failure of a borrower to make an installment payment(s) when due, or to meet other terms of the promissory note or loan repayment.
Deferment
There may be circumstances that do not permit you to follow your loan repayment plan. A deferment temporarily postpones payment on your loans. Deferments may be available for a number of reasons if you are: pursuing at least half-time study in a degree program, in a graduate fellowship program approved by the U.S. Department of Education, disabled and in a rehabilitation training program, conscientiously seeking but unable to find full-time employment, or experiencing economic hardship.
Students who are unable to make their loan payments under their specified repayment plan should contact their loan servicer. It is important for the student to discuss the various repayment and deferment options available and to work towards a repayment arrangement that is suitable to their personal situation.
Deferred Interest
Interest payments that are postponed for the borrower and paid at a later date.
Delinquent
When the borrower fails to make a loan payment when due (subject to certain "grace" periods the lender may provide).
Dependent and Independent Status
A student's status affects which loans and funding they may be eligible to receive. Independent students include any of the following: 24 years or older by 12/31 of the award year; married; graduate or professional student; with legal dependents other than a spouse; orphan or ward of the court; veteran of U.S. military. Dependent students are those students that rely on their parent(s) or legal guardian(s) for support and who do not meet the federal criteria of a self-supporting student.
Disbursement
When funds are given by the lending institution to the borrower. For student loan programs, the disbursement may be co-payable to the school and the student. Sometimes it can be sent via Electronic Funds Transfer (EFT) directly to the school’s account. For federal student loans, the funds are divided into two equal disbursements.
Disclosure Statement
Statement of actual cost to the borrower for a loan, which includes certain disclosures required by Truth in Lending (Regulation Z) including, Annual Percentage Rate (APR) and certain additional charges.
Discretionary Income
Money left over after all necessary monthly bills have been paid.
EFC (Expected Family Contribution)
The filing of your FAFSA (Free Application for Federal Student Aid) determines the amount your family is expected to pay toward your tuition. This is referred to as your EFC (Expected Family Contribution)
FAFSA (Free Application for Federal Student Aid)
Any student that applies for financial aid must file their FAFSA after January 1 of the year they plan to enter school. For example, if they are entering school in the fall of 2000, they should complete their FAFSA after January 1, 2000. The information on your FAFSA, like family income, total assets and family size, helps the U.S. Government make an assessment of your financial need. All information is kept confidential, and you must file a renewal FAFSA each year that you wish to be considered for financial aid.
Federal PLUS (Parental Loans for Undergraduate Students) Loans
PLUS Loans are the federally backed loan where the parent is the borrower. The student must be considered dependent, and the loan and the amount borrowed is certified by the school.
Federal Subsidized Stafford Loan
This federally backed loan is part of the aid package awarded by your school. The government pays the interest while you are in school and during the six month grace period.
Federal Unsubsidized Stafford Loan
This federally backed loan is part of the aid package awarded by your school. The student is responsible for paying the interest on this loan from the time of disbursement. This loan is not based on financial need, and it must be certified by your school’s financial aid office.
Financial Hardship
A situation where the borrower is experiencing financial difficulty, under which they might be granted a deferment or forbearance.
Fixed Interest Rate
Rate of interest that does not change during the life of the loan.
Forbearance
A special arrangement between the borrower and lender (at the lender's option) that allows the borrower to temporarily stop making payments, obtain an extension for making the payments, or make smaller payments than originally scheduled.
Forgiveness
Certain military or government service, disability or death are common reasons for loan forgiveness. It means you are no longer obligated to pay all or part of the loan.
Garnishment
Withholding a specific sum from wages to satisfy debt.
Grace Period
The period before the borrower begins repaying the loan or offer a payment due date before a late charge is imposed.
Graduated Repayment
The Graduated Repayment Plan offers lower initial payments that escalate every few years over a 12 to 30 year period. It is best for heavily indebted graduates in professions that offer lower starting salaries.
Guarantee Fee
A fee charged by the guarantor for each loan it guarantees. Check to see if this amount is deducted from the loan amount at origination.
Guarantee Agency or Guarantor
The agency that insures the guaranteed education loans made by lenders. The guarantor can sometimes help on your behalf if you have problems that can't be resolved by your lender or servicer.
Income Sensitive
This plan permits payments to rise or fall annually in accordance with the borrower's income. It is suited for those whose income would not allow them to make loan payments within one of the other payment options. Greater details on the program may be obtained by calling your loan servicer.
Interest
The cost for borrowing money.
Lender
The bank, savings and loan, credit union, or other approved creditor/entity from which you obtained your education or other type of loan. If you have a Perkins student loan, the school could be considered your lender.
Loan Origination Fee
A fee that is deducted from principal and sent to the federal government as insurance for a loan default.
Loan Period
The time frame that the loan will be used for, usually based on the academic year.
Maturity Date
The date upon which the loan evidenced by a promissory note or loan repayment becomes due and payable.
Perkins Loan
This low interest, federal student loan is based on financial need. It is obtained directly from the school, and no interest accumulates while students are in school and during their nine month grace period.
Prepayment
This is when you prepay your loan in part or in full prior to your repayment schedule. There is no penalty associated with doing this, and you may save yourself significant interest.
Principal/Principal Balance
Principal is the face value of the loan, or the amount borrowed, upon which interest is charged. The Principal Balance is the amount remaining after subtracting the payments made against the original principal.
Promissory Note/Loan Agreement
A written promise to pay a lender a fixed amount of money over a specified period of time.
Repayment Schedule/Disclosure Statement
This document contains the exact terms of the loan including the interest rate and monthly payment amount.
SAR (Student Aid Report)
The Federal Government will mail you your SAR which informs you of your EFC. Secondary Market (For Student Loans) A state or private agency that purchases Stafford and PLUS/SLS loans from lenders. If your loan is sold (and this is very common for lenders to do), then you will deal with the secondary market for everything that concerns your loan from that point on. This is an example of why you should read and keep track of all your mail relating to your loan.
Separation Date
The point when a borrower graduates, leaves school, or drops to less than half-time attendance. This change in status usually triggers the beginning of their grace period.
Servicer
The company that handles all the billing, record keeping, and paperwork on the repayment of your education loans on behalf of the lender or holder of the loan.
Simple Interest
Interest calculated on the principal amount of the loan only (not on principal plus interest).
Standard Repayment
Of the repayment options available to student loan borrowers, the most familiar is the Standard Repayment Plan, which requires fixed monthly payments for ten years. Monthly repayment amounts may be adjusted to reflect changes in the variable interest rate.
Variable Interest
Rate of interest that is tied to a certain index (depending on the loan) and changes periodically as the index changes or as otherwise provided in the promissory note/loan agreement.
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