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Glossary of Terms

Accrued interest. The accumulated interest on a loan.

Aggregate loan limit. The maximum allowable amount a student can borrow. Capitalized interest or any collection costs that may have been added to the principal are not included in the borrower's aggregate loan limit.

Alternative loan. Sometimes referred to as private loans, they're education loans offered by private lenders to supplement the student and parent education loan programs available from federal and state governments.

Amortization. The process of gradually repaying a loan over an extended period of time through periodic installments of principal and interest.

Annual percentage rate (APR). The actual annualized interest charged when all associated costs are included. Associated costs may include interest, origination fees, federal default fees, application fees, repayment fees and any prepaid finance charges.

Applicant. A person who applies for a student loan.

Auto debit/automatic payments. Payments automatically deducted from the borrower's bank account at a regular, specified time each month. Lenders often offer a financial incentive such as a reduced interest rate when borrowers choose this feature.

Borrower. The person legally responsible for a loan obtained from a bank or other financial institution.

Borrower Rights and Responsibilities. All terms and conditions related to the loan that is secured by the promissory note to which those rights and responsibilities are associated. The borrower must read and agree to those conditions.

Capitalization. The practice of adding accrued interest to the principal balance of the loan. Interest then is charged on the new higher balance (original principal plus accrued interest). Capitalization increases the amount of money the borrower eventually will have to repay. Capitalization sometimes is called compounding interest.

Consolidation Loan. A federally insured loan or a loan made by the federal government directly to borrowers who want to combine their outstanding education loans into a single loan with a single monthly payment.

Cost of Attendance.  The cost of attendance is the estimated amount of money that it will cost for a student to attend your institution. The figures are based on the cost of the courses (tuition), room and board (accommodations), books and required supplies and transportation. This is also the maximum amount of aid that an undergraduate or graduate student can receive for the year. If the full amount of the student borrower's eligibility has been met and the cost of attendance changes, then the school is responsible for making sure that the aid does not exceed the cost. If it does, future disbursements can be reduced.

Creditworthy.  A determination, based on examination of the applicant's credit history, that the applicant has the ability to repay the loan. The lender determines factors to consider in the evaluation, such as a minimum monthly income, previous experience with credit, credit bureau report and credit score.

Debt-to-income ratio.  A calculation that analyzes how much of an individual's monthly income is used for payment of debt.

Default. The failure of a borrower (or endorser, if applicable) to make installment payments when due, or to meet other terms of the promissory note or other written agreements with the lender. Default on a federal student loan happens after 270 consecutive days of nonpayment and can severely damage a borrower's credit rating. Borrowers who default also lose eligibility for all federal student aid, including federal grants.

Deferment. A period when the borrower is allowed to postpone payments on the loan principal. During deferment, the federal government pays the interest on subsidized federal student loans, but the interest continues to accrue on unsubsidized federal loans.

Delinquency. Failure to make loan payments when due. Delinquency can lead to default.

Direct Loan Program. A loan program authorized by Title IV, part D of the Higher Education Act of 1965, as amended, including the Federal Direct Stafford, Federal Direct PLUS, and Federal Direct Consolidation Loan Programs. This program is run through a partnership between schools and the federal government, and the funds come from the federal government.

Disbursement. The transfer of the loan proceeds to the school.

Disclosure statement. Provides the borrower with information about the actual cost of the loan, including the interest rate, origination, insurance, loan fees and any other types of finance charges. Lenders must provide the borrower with certain disclosures before disbursing a loan and at specific times during the life of the loan.

Electronic Signature. An electronic sound, symbol or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.

Entrance Counseling. Entrance counseling is an in-person, videotaped or online session that explains the federal loan program to federal Stafford Loan borrowers. Attendance and/or completion is required prior to the disbursement of the loan, unless the borrower can prove that they have already completed it. However, as a part of their own default prevention policy, schools can require their borrowers to complete entrance counseling, regardless of what they have on file at another institution. Some schools may opt to require counseling every year.

Expected Family Contribution. How much money your family is expected to contribute to your college education for one year. Typically, the lower your EFC, the more financial aid you will receive. The federal government uses factors such as family size, number of family members in college, family savings, and current earnings to calculate this figure.

FAFSA. The Free Application for Federal Student Aid is the form that the student (and parents of dependent students) must complete to apply for federal financial assistance, including federal student loans.

Federal Default Fee. Insurance fee of up to 1 percent that a guarantor charges a federal student loan borrower. This fee is deducted from the loan principal amount before the borrower receives the loan funds. The fee revenue is used to reimburse lenders in the event a borrower defaults and to fund efforts to prevent student loan defaults.

Finance Charge. The total amount of interest and fees paid over the life of the loan. Generally, this charge is equal to the difference between the sum of all payments made and the original amount of funds disbursed.

Financial Need. The student's cost of attendance less the expected family contribution.

Forbearance. A period of time during which the borrower may temporarily cease making payments or reduce the amount of the payments. The borrower is responsible for the interest that accrues on all loans, subsidized and unsubsidized, during the forbearance period. Forbearance may be granted at the discretion of the lender, but in some cases, federal regulations require the lender to grant certain periods of forbearance.

Full-time Student. An enrolled student who is carrying a full-time academic workload – usually 12 or more credit hours – (other than by correspondence) as determined by the school under a standard applicable to all students enrolled in a particular education program.

Graduate Student. A student who:

  • Is enrolled in a program or course above the bachelor's degree level at an institution of higher education, or enrolled in a program leading to a first professional degree.
  • Has completed the equivalent of at least three years of full-time study at an institution of higher education, either before entrance into the program or as part of the program itself.
  • Is not receiving Title IV aid as an undergraduate student for the same period of enrollment.

Grace period. The six-month period that begins the day after a borrower ceases to be enrolled at least half time at an eligible school. During the grace period, payments of principal on Federal and Direct Stafford loans are not required. Certain PLUS loan borrowers also may defer payments for a six-month period after they, or the student for whose benefit a parent took out a PLUS loan, ceases at least half-time enrollment.

Guaranty Agency or Guarantor. A state or private not-for-profit organization that has an agreement with the U.S. Secretary of Education to administer a loan guarantee program under the Higher Education Act. Under this agreement, the guaranty agency insures or guarantees student loans against default and other losses.

Holder. The current owner of a federal student loan.

In-school period. The time when a student is enrolled in school at least half time, and during which no principal or interest payments are required. On an unsubsidized federal student loan, the unpaid interest will accrue and be capitalized prior to the start of the repayment period. The promissory note related to the particular loan program will specify whether that program permits any cessation of payments during periods of enrollment.

Indebtedness. The state of being legally obligated to pay for some value received; having a financial obligation to another entity, such as a mortgage or a student loan.

Institutional Charges. Institutional charges are fees that students pay directly to the school. These charges may include health insurance, but only if it is required by the institution. Thus, a student would not be able to decline the charge.

Institutional Student Aid Record. The Institutional Student Information Record (ISIR) is the electronic version of the Student Aid Report (SAR). Schools may access the report through CPS Online, which is provided through the US Department of Education. Click here for their contact information.

Interest rate ceiling/cap. The maximum rate allowable for a variable interest rate.

Late charges. An amount that a lender charges to the borrower if all or a portion of a required payment isn't paid within a specified period of time after the due date.

Lender. The organization that funds education loans for students and parents.

Loan period. The academic period for which loan funds are used to cover the costs of education. The loan period start date is the first day of the academic period. The loan period end date is the last day of the academic period.

Master Promissory Note (MPN). The promissory note a borrower signs when taking out a Stafford or PLUS loan, agreeing to repay the loan or loans and other terms and conditions. The MPN can serve as a multi-year promissory note, under which multiple loans may be made without requiring additional promissory notes for future academic years.

Origination fee. (1) A fee charged deducted from the borrower's loan proceeds by the lender and remitted to the federal government to help offset the cost of the federal student loan program. (2) A fee that lenders must pay the U.S. Department of Education based on the principal amount of new Federal Family Education Loan Program loans. Lenders may not pass on this fee to borrowers.

PLUS Loan. A non-need-based loan made to the parent for the benefit of a dependent student or to a graduate or professional student enrolled in an eligible graduate or professional course of study.

Proprietary School. A privately owned institution that is run as a profit-making enterprise.

Principal balance. The outstanding amount of the loan on which the lender charges interest. As the loan is repaid, a portion of each payment is typically used to satisfy interest that has accrued since the last payment was received. The remainder of the payment is used to reduce the outstanding principal balance.

Private (Alternative) Loan. A loan made available to student borrowers through lending institutions. These loans are not part of the federal student loan program.

Promissory note. The binding legal document that must be signed by the borrower before loan funds are disbursed by the lender. The promissory note states the terms and conditions of the loan, including interest rate, and cancellations. The borrower should keep this document until the loan has been repaid.

Satisfactory Academic Progress. The level of academic progress required of a student by the Higher Education Act to continue to receive federal student aid. Each school must establish a standard for evaluating a student's efforts to achieve an educational goal within a given period of time.

School. An accredited institution that participates in Title IV programs for the purpose of awarding financial aid to the students and their parents.

Servicer. A servicer is hired by the Department or FFELP lender to collect, monitor, and report student loan payments.

Student Aid Report. After you complete the FAFSA, the Federal Student Aid office of the US Department of Education will mail you your SAR, Student Aid Report. The SAR summarizes the information you included on the FAFSA, and if your information is complete, it will provide you with the Expected Family Contribution that colleges use to determine your financial aid package.

Subsidized Stafford Loan. A need-based loan on which the federal government pays the interest that accrues during the student's in-school, grace, authorized deferment, and post-deferment grace periods (if applicable), if the loan meets certain eligibility requirements.

Title IV. A section of the Higher Education Act of 1965, as amended, that authorizes federal loan, work and grant education financial assistance programs.

Treasury Bill (T-bill). A note or bill issued by the U.S. Treasury as legal tender for all debts. Treasury bill rates serve as the basis for establishing interest rates on most variable-rate Stafford and PLUS loans.

Tuition. The fees charged for instruction at a school.

Undergraduate student. A student who is enrolled at a school in a course of study that is at or below the bachelor's degree level, that is up to five academic years in length and is designed to lead to a degree or certificate at or below the bachelor's degree level.

Unsubsidized Stafford Loan. A non-need-based loan on which the borrower is responsible for the interest accrued during in-school, grace and deferment periods, as well as during repayment.

Variable interest. An interest rate that changes periodically. For example, variable interest rates on Stafford and PLUS loans are adjusted annually, effective July 1 through the following June 30