Student Loans Glossary

Student Loan Glossary
Important Financial Aid Terms and Definitions

Student loans greatly affect your education as well as your finances. They’re long term commitments so use our glossary to make sure you fully understand the contract you’re getting into.

Accrued Interest – This refers to interest that builds on the unpaid principle of a loan.

Annual Percentage Rate – Also known as APR, is the total interest rate of a loan after all fees and finance charges have been factored in. The APR of a loan isn’t a fixed rate and varies from loan to loan.

Award Letter – This is an official document sent to the student that must be signed in order to secure a student loan. It states all of the financial aid the student is receiving including the source, type, and amount of the financial aid as well as the terms of the aid.

Campus-based Aid – Simply put these are university financial aid programs, using federal funds given to the university for the financial aid administrator to award. Because the amount of federal funds given to the university is fixed, not all eligible students will be awarded campus-based aid.

Capitalization – Capitalization occurs when accrued interest that has not been paid is added to the principle amount of the loan, thus increasing the amount of the loan since a student now has to pay interest on the accrued interest and the principle balance.

College Direct Costs – These are costs, such as tuition, that are directly related to the college. With these costs the student is billed by the college.

College Indirect Costs – Indirect costs are all other costs of college that aren’t associated with the college itself, therefore not billed by the college. There are various indirect costs from housing expenses to school materials.

College Work Study – Also sometimes referred to as Federal Work Study Program, a college work study is part-time work on a campus for individuals receiving aid. When the funds to create these jobs is provided by the government it is considered Federal Work Study.

Compounded Interest – Compounded interest is interest paid on the principle balance as well as the accrued interest.

Consolidation – This is the act of combining several loans into one single loan under a solitary lender, usually done to assist paying off the loans.

Cosigner- Also known as co-borrower, this is a person other than the principle borrower who also signs the loan documents guaranteeing responsibility for paying on the loan should the primary borrower fail to do so.

Cost of Attendance – Basically this is the total cost that the typical student will accrue while attending college, including every possible cost from child care to books as well as loans, and is calculated individually by each college.

Default – Also referred to as delinquency, this is when a borrower fails to make more than one of their consecutive scheduled payments, or are in breach of any other term of the loan. If not corrected, legal action can be taken against the borrower, and if it is a government loan the student will no longer be eligible for further aid if a repayment schedule is not negotiated.

Deferment – Deferment is the act of stalling the requirement to repay a loan for a short period of time. However, interest does accrue during periods of deferment.

Department of Education – This is the government organization that oversees financial aid programs and handles the application process among other things.

Disclosure Statement – This is a document lenders are required to send to borrowers which specifying all the terms of the loan and the actual costs associated with the loan.

Extended Repayment – This is a payment option for borrowers with federal loans of $25,000 or more. The Extended repayment option makes it possible for borrowers to extend their loan from 10 years to 25 or 30 years for repayment, thus reducing monthly payments but increases the amount of interest paid.

FAFSA – This stands for Free Application for Federal Student Aid. It refers to the official application for all federal loans.

Federal Direct Student Loan Program (FDSLP) – This is the federal program that disperses funds for campus based-aid in which the college is in charge of handling and awarding the federally funded loans directly to students.

Federal Family Education Loan Program – Also referred to as FFELP, this program included privately funded loans that are guaranteed against default by the government. An example of this type of loan is PLUS loans.

Federal Methodology – This calculation determines the expected family contribution for education expenses throughout a year. All the family’s financials are taken into account to determine a student’s financial need and eligibility for federal aid.

Financial Aid Administrator – The FAA is an individual working for the college or university, who is in charge of the financial aid.

Fixed Interest – This is an interest rate which is locked in and will remain the interest rate of the loan throughout its duration.

Forbearance – Forbearance is when a lender allows a borrower to temporarily forego making payments on the principle, though the borrower must continue to pay on the interest that accrues during the forbearance period. Forbearance is used at the discretion of the lender, however, if the loan is already in default forbearance is not an option.

Grace Period – A period of either 6 or 9 months after graduation, depending on the loan, in which the borrower isn’t required to repay the loan.

Graduated Repayment – This is a repayment option in which the borrower begins the loan with smaller monthly payment amounts that gradually grow over the life of the loan.

Grant – A grant differs from a loan in that it is financial aid that the borrower doesn’t have to repay. Like other financial, grants are based on financial need.

Guarantee Agency – A guarantee agencies are the state agencies that guarantee student loans against default, and also are the enforcers of federal and state student loan procedures and regulations. A percentage of each loan is kept by the guarantee agency and used to cover the loans.

Guarantee Fee – These are fees that the guarantee agencies collect to protect loans against default by student borrowers. The fee is typically around 1% and legally can’t be above 3%.

Income Contingent Repayment – This is a loan repayment option in which the amount of the monthly loan payments is based on the income of the borrower. If the borrower makes more money the monthly payments will increase accordingly.

Institutional Methodology – Institutional Methodology, like federal methodology, is a calculation of expected family contribution, however these calculations are done by the college not the federal government and includes different criteria in the calculations in order to determine financial aid eligibility.

Interest – Interest is the amount a borrower is required to pay to receive a loan. It’s a typically a percentage of the total of the loan, and interest rate terms vary from loan to loan.

Maturity Date – The date by which a loan must be paid in full.

Origination Fee – This is a fee in connection the cost of creating the loan. The origination fee can go as high as 3% of the principle amount borrowed.

Parent Loans for Undergraduate Students (PLUS) – These are federal loans given to parents of undergraduate students to assist them in financing the student’s educational costs, or the EFC. Good credit is needed, and up to the entire amount of the college cost can be borrowed.

Principle – Principle if the amount being borrowed in a loan. This is what the interest is based off of, and once a loan is begun it also refers to the balance remaining on the loan.

Private Loans – These are student loans issued by private lenders independent of state and federal loan programs.

Promissory Note – The promissory note is the signed legal document which officially enters a lender and borrower into a contract for the loan and allows for disbursement of funds. The promissory note contains all the terms and conditions of the loan.

Scholarship – A scholarship is financial aid awarding to an undergraduate student for educational costs and doesn’t require repayment of the funds. There can often be restrictions and requirements to scholarships as to what the funds can be used for and who is eligible to receive them.

Secondary Market – This is the system where loans are sold by lenders to another organization in order for the lender to have funds to issue new loans. This is a common lending practice and doesn’t affect the terms of the loan, just the entity enforcing it.

Simple Repayment – Repayment of a Loan in which the borrower pays in set monthly installments throughout the entire duration of the loan.

Stafford Loans- Stafford loans are federally issued loans that can either be subsidized in which the government takes responsibility of repaying interest during the student’s education and the 6 month grace period afterward, or they can be unsubsidized.

Statement of Educational Purpose – In simple terms this is a document that a student must sign in order to receive a loan. It states that the student is going to use the money loaned to them for costs associated with education only.

Student Financial Need – This term refers to the monetary difference between the cost of attending college and the expected family contribution (EFC). This is an indicator for the amount of financial aid necessary for a student to cover the educational costs for a particular school.

Student Loan – This is when a lender, college, government, or other third party gives financial aid to a student and that financial aid must be repaid with interest depending on the terms agreed on for the loan.

Subsidized Loan – This type of loan is a benefit to the student as the government covers the cost of the loan’s interest while the student is in school, during the grace period, and while there are any deferments. Subsidized loans aren’t available to everyone, financial requirements must be met.

Variable Interest – With this interest rate there is not a set interest amount for the duration of the loan, rather the interest rate will change based periodically.