Amortization

A gradual reduction of a loan debt through periodic installment (usually monthly) payments of principal and interest.

Annual Percentage Rate (APR)

The interest maintained on a loan for a one-year period.

FDSLP

The Federal Direct Student Loan Program

FFELP

The Federal Family Education Loan Programs, formerly known as the Guaranteed Student Loan program (GSL).

Fees

Most loans have one or more fees, such as guarantee, origination, and insurance of application fees. These fees are usually deducted from the amount you borrow before the loan is disbursed. Some loan fees can be borrowed in addition to the approved loan amount. Note: Interest on a loan accrues on the total amount – principal paid to you or your school, plus any fees.

Fixed Interest Rate Loan

The interest rate remains the same over the life of the loan.

Guarantee Fee or Insurance Fee

An insurance premium deducted from the borrower’s loan proceeds before disbursement and paid to the guaranty agency that insures the loan. By law, the fee cannot exceed 1% of the loan amount.

Holder

The institution with legal title to a borrower’s loan. The holder may be the lender that originally made the loan, a secondary market to which the lender has sold the loan, or, in the event of default, the guaranty agency.

Interest Capitalization

Occurs when accrued interest is added to a loan’s principal balance. Lenders may capitalize interest quarterly, annually or once at repayment. The loan becomes more expensive the more frequently accrued interest is capitalized.

Prime Rate

This is the rate of interest that commercial banks charge their most creditworthy customers. Interest rates on private education loans are often based on the prime rate. A major influence on adjustments to the prime rate is federal monetary policy. When the Federal Reserve Board raises or lowers the discount rate (the interest rate charged on loans to member banks), lenders adjust their prime rate accordingly. This generally results in subsequent interest adjustments for loans with variable rates.

Promissory Note

The legal and binding contract signed between the lender and the borrower, which states that the borrower will repay the loan as agreed upon in the terms of the contract.

Electronic Signature

Done in an electronic format in place of a traditional paper and handwritten (wet) signature.

PLUS Loans

If your parents want to borrow funds to help pay for your education, they may borrow up to the difference between your educational costs and other financial aid each year from a bank or other lending institution through this program.

Repayment Options

Most lenders offer borrowers a choice of repayment options, such as: 1. Pay both principal and interest while in school. 2. Pay interest only while in school. 3. Defer all payments while in school and allow the lender to capitalize the interest.

Repayment Term

The length of time you have to repay the loan. The Repayment Term is stated in the promissory note you sign when you apply for a loan. The maximum repayment term is usually between 10 and 30 years, depending on the type of loan and the amount you borrow. The longer the repayment period, the more expensive the loan becomes because you pay more in interest; however, the monthly payment is lower because you repay the loan over a longer time period.

Secondary Market

An organization established to purchase education loans from lenders. This allows lenders to replenish capital to fund new loans. Selling loans is common practice among lenders and does not affect the terms and conditions under which the loan was originally made.

Servicer

An organization that acts for the lender to administer their student loan portfolio and is paid a fee to do so.

Student Aid Report (SAR)

The form students receive after filing a FAFSA application that notifies students of their eligibility for federal student aid.

Subsidized Loans

Loans on which the Federal Government pays the interest until the student enters repayment. When the loan has been granted a deferment, the government pays the interest during the deferment period.

Treasury Bill Rate (T-bill rate)

The rate paid by the government on its short-term borrowing. The rate is reset periodically through public auctions. The T-bill rate is based on the quarterly average of 13 weekly auctions.

Undergraduate

A student who has not yet received a bachelor degree.

Unsubsidized Loans

Loans on which the student is responsible for paying the interest that accrues on the loan from the date of disbursement until the loan is paid in full, regardless of enrollment status.