Student Loan Glossary
A
Accrued Interest:
Interest that accumulates on the unpaid balance of a loan.
Appeal:
A formal request to have a financial aid administrator review a student's aid eligibility and possibly use professional judgment to adjust the figures.
Associate's Degree:
An academic award given for completing undergraduate college programs requiring at least two but fewer than four years of study.
Award Letter:
An official document issued by a school's financial aid office that itemizes the financial aid awarded to the student. Students are often required to indicate if they accept or decline each source of aid, sign it, and return their award letter to the school.
B
Bachelor’s Degree:
An academic award given for completing undergraduate college programs usually requiring four years of study. Also called the baccalaureate degree.
Bankruptcy:
When a person is declared bankrupt, he/she is found to be legally insolvent and his/her property is distributed among his/her creditors or administered to satisfy the interests of his/her creditors. By law, a student loan cannot be discharged through bankruptcy.
Borrower:
The person who is responsible for paying the loan.
C
Campus-Based Aid:
Federal financial aid programs that are administered by colleges and universities. Schools are given an annual allocation by the government that financial aid administrators award to students with financial need. Such programs include the Perkins Loan, Supplemental Education Opportunity Grant, and Federal Work-Study.
Capitalization:
The practice of adding unpaid accrued interest to the principal balance of a loan, thereby increasing the size of the loan. Interest is then accrued on the new balance, including both the unpaid principal and the past accrued interest.
Certificate:
The award usually given for completing a college program or vocational specialty requiring less than two years of study.
Consolidation:
A federal or private loan that combines several student loans into a single new loan from one lender. Consolidation generally results in a lower monthly payment and an extended repayment term, but a higher interest rate and total cost of debt.
College:
Institution of higher education that offers undergraduate programs and limited graduate programs. It also can be a separate unit within a university like a college of business or college of arts and sciences.
Cooperative Education:
A college program that alternates terms of full-time study and full-time employment. While working, students usually have jobs related to their college major.
Cost of Attendance:
Used to calculate the student’s financial need, the cost of attendance is the total annual price of attending a given school, including tuition, fees, books, housing, meals, transportation, and personal expenses. Schools establish different COAs for students living on-campus and off-campus, for married and unmarried students, and for in-state and out-of-state students.
D
Default:
Failure to repay a student loan according to the terms of the promissory note. When regular monthly payments on federal student loans are overdue by 270 days or the borrower otherwise fails to meet the terms and conditions of the loan, the holder of the loan, the guarantor, and the federal government can take legal action to recover the money, including garnishing wages and withholding income tax refunds.
Default Fee or Guarantee Fee:
An up-front fee, deducted directly from student loan disbursements, to pay a guarantor for repayment insurance on the loan. On federally guaranteed student loans, the fee is 1%, but it is often waived or paid by the lender.
Deferment:
A period during which the borrower does not have to make loan payments. Under some loan programs, such as the subsidized Stafford loan, the interest accrued during the time payments are postponed is paid by the government and the lender.
Delinquency:
When loan payments are late or missed. Serious delinquency results in default.
Dependent Student:
A student whose financial aid eligibility is judged on his or her parent's income and assets. Unmarried students under the age of 24 are typically considered dependent students. See independent student for the conditions under which an individual is considered independent.
Direct Loans:
The William D. Ford Federal Direct Loan Program is a federal student loan program offering the same Stafford student loans and PLUS loans as the Federal Family Education Loan Program (FFELP). In the FDLP, however, the Federal Government acts as the lender. Less than one-third of colleges and universities participate in the Direct Loan Program.
Disbursement:
The release of the proceeds from a student loan. Most student loans are disbursed to the student’s school in two to four equal portions, depending on the number of terms in the standard academic year at the borrower's school.
Disclosure Statement:
Legally required statement provided by lenders that discloses the actual cost of a student loan, including the interest rate, origination, insurance, and loan fees, and any other kinds of finance charges.
Doctorate:
The highest academic degree conferred by a university on students who have completed at least three years of graduate study beyond the bachelor's and/or master's degree. A Ph.D. is a common doctorate.
Due Diligence:
Collection activity carried out by the lender, holder, servicer, and/or guarantor of a student loan is required and prescribed by the Federal Government. Through this activity, agencies attempt to contact the borrower, his or her references, employer(s), family, etc. to bring a delinquent loan current.
E
Electronic Funds Transfer (EFT):
A process used by many schools and lenders to electronically wire funds for Stafford and PLUS disbursements directly to the school, eliminating the need for a paper check that would need to be signed by the school and the student.
Entrance, Exit, and Refresher Interviews:
Required counseling sessions that a student loan borrower attends before receiving each year’s loan disbursement and before leaving school.
Expected Family Contribution (EFC):
The amount is calculated using a standard federal formula that the student's family is expected to pay toward the student's education. It is based on the family’s income, assets, size, and number of children in college.
F
Fixed Interest Rate:
A rate that remains the same from the day the loan is issued through the last payment.
Forbearance:
An agreement between borrower and lender to delay or reduce loan payments because of financial hardship. Interest continues to accrue during forbearance.
Free Application for Federal Student Aid:
Better known as the FAFSA (FAF-suh). All students applying for financial aid must file this comprehensive form, which requires information about their family’s income, income taxes, assets, and more. The FAFSA is used to determine eligibility for all federal aid programs, and most schools use it to determine eligibility for state and institutional aid.
Full-Time:
Typically indicates a student is enrolled in the equivalent of 12 credit hours per semester.
G
Grace Period:
The period between the time the borrower leaves school and begins repayment of a student loan. On federal student loans, the grace period is six months. Private student loans vary depending on loan programs and lender.
Grant:
Money awarded to a student based on financial need. Grants may come from state, federal, or school funds and do not have to be repaid.
Graduated Repayment:
A loan repayment plan that allows the borrower to make smaller payments in the beginning and gradually higher payments later on.
Guarantee Agency or Guarantor:
An agency that insures repayment of student loans for lenders and/or administers the student loan insurance program for the federal government.
Guarantee or Default Fee:
An up-front fee, deducted directly from student loan disbursements, to pay a guarantor for repayment insurance on the loan. On federally guaranteed student loans the fee is 1%, but it is often waived or paid by the lender.
H
Half-Time:
Typically indicates a student is enrolled in more than the equivalent of 6 credit hours, but less than the equivalent of 12 credit hours per semester.
Holder:
The institution that holds the title to the loan. The holder is usually the originating lender or a secondary market that has purchased the loan from the originating lender.
I
Income-Sensitive Repayment:
A loan repayment plan designed so that loan payments increase with the borrower’s income.
Independent Student:
The financial need of independent students is calculated based on their own financial means, without the assets or income of their parents. To be considered independent a student must be:
- 24 years old by December 31 of the award year
- An orphan or ward of the court
- A veteran
- Married or have legal dependents other than a spouse
- A graduate student
- Declared independent by a financial aid administrator, based on unusual circumstances
Index:
A standard, publicly reported interest rate on which loan interest rates are based, such as the Prime rate or T bill rate. Loan rates are often stated based on the index plus a margin, for example, Prime + 1%.
Internship:
A period of apprenticeship when students work off-campus, under supervision, in a school, factory, hospital, business, laboratory, or government agency or program. It allows students to learn practical applications of classroom material.
L
Lender:
The institution that provides the loan to the borrower, such as a bank, savings and loan, or credit union.
LIBOR:
London Inter-Bank Offer Rate. The interest rate that the banks charge each other for loans (usually in Eurodollars). This rate is applicable to the short-term international interbank market, and applies to very large loans borrowed anywhere from one day to five years. This market allows banks with liquidity requirements to borrow quickly from other banks with surpluses, enabling banks to avoid holding excessively large amounts of their asset base as liquid assets. The LIBOR is officially fixed once a day by a small group of large London banks, but the rate changes throughout the day.
Loan Combination:
Also called serialization, this “repayment plan” combines multiple student loans onto a single statement so borrowers write only one check to one entity each month.
Loan Principal:
The amount of money owed to a lender on which interest accrues.
M
Major:
The field of study in which a student specializes.
Margin:
Usually used to express an interest rate that is based on an index rate. Using the example of Prime + 1%, 1% is the margin a borrower will pay over the index rate of Prime.
Master's Degree:
An academic award that requires the successful completion of a program of study of at least one, but not more than two, traditional, credit-based academic years of work beyond the bachelor's degree.
Master Promissory Note:
A contract between a student loan borrower and lender stating the conditions under which the loan was made and terms under which they must be repaid. An MPN allows for additional loans to be made under the note for up to 10 years.
O
Origination Fee:
A fee charged by the Federal Government to help reduce the government’s cost of subsidizing low-interest student loans. The 3% on Federal Stafford and PLUS loans is sometimes paid by lenders on behalf of borrowers.
P
Part-Time:
Typically indicates a student is enrolled in fewer than half of the credit hours required to be enrolled full time. Most semester schools consider part-time as less than six credit hours of study.
PLUS Loan:
Parent Loans for Undergraduate Students (PLUS) are low-interest loans for parents or graduate students (authorized under Title IV of the Higher Education Act) offered through participating FFELP lenders and the Federal Government.
Prepayment:
Paying back a portion or the entire amount of loan principal before it is due to reduce total interest charges. There is no penalty for prepayment of federal student loans.
Prime:
The lowest rate of interest on bank loans at a given time and place, offered to preferred borrowers. Also called prime interest rate.
Promissory Note:
The legally binding contract between the borrower and lender that contains the terms and conditions of the loan, including how the loan must be repaid.
Proprietary School:
Privately owned, for-profit institutions of higher education.
R
Repayment Schedule:
The amount and timing of periodic payments required by the promissory note to repay the loan. A repayment schedule is mailed to each federal student loan borrower during their grace period.
S
Scholarship:
Money awarded to students based on merit or ability, usually academic or athletic. Sometimes scholarships consider financial need, but not always.
Secondary Market:
An organization that purchases loans from lenders, providing lenders with money to make more loans available to other students.
Servicer:
An organization that maintains the borrower’s loan account records, sends billing notices and is responsible for collecting payments on student loans. In some cases the lender or the guarantor may be the servicer.
Stafford Loan:
Subsidized Stafford Loans - A low-interest student loan (authorized by Title IV of the Higher Education Act) of which the Federal Government and the lender pays the interest accrued during the student's in-school, grace, and deferment periods. Offered by participating FFELP lenders and the Federal Government.
Unsubsidized Stafford Loan - A low-interest student loan (authorized by Title IV of the Higher Education Act) of which the Federal Government does not pay the interest. The borrower is responsible for paying all interest accrued from the date the loan is disbursed. Offered by participating FFELP lenders and the Federal Government.
Standard Repayment:
A loan repayment plan in which a loan is repaid with equal monthly payments throughout the life of the loan.
Student Aid Report:
The SAR is mailed to students about four weeks after filing the Free Application for Federal Student Aid. The SAR communicates the student’s Expected Family Contribution (EFC) and eligibility factors for different types of financial aid, such as the Pell Grant.
T
Two-Year College:
An institution of higher education that offers associate degree programs and certificates. Many two-year schools offer transfer programs to traditional four-year colleges and universities.
V
Variable Interest Rate:
An interest rate that is tied to an index and changes periodically — annually, quarterly, or monthly. On variable rate federal student loans, the rate changes annually on July 1.
