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Terms to Know



Aggregate

The total cumulative amount a consumer can borrow from a particular loan program.

Amortization

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

Borrower

The person who is primarily responsible for the obligation to repay borrowed funds. A signed promissory note serves as the formal, legal promise to repay.

Cosigner

A person who agrees to be jointly responsible for repaying a loan along with the borrower. A creditworthy cosigner often enables a borrower lacking sufficient credit history to qualify for a loan. The addition of a cosigner on a loan may result in better loan terms (e.g., lower interest rate or lower fees). The cosigner is equally responsible for the debt as long as it is outstanding, unless s/he is formally released from the obligation during repayment.

Credit-Based Loan

A loan based on a borrower's creditworthiness. The interest rate and fees are calculated based on the borrower's credit history. Consumers with the highest FICO scores will get the best loan terms.

Credit Report

A record of current and past credit transactions that potential lenders use to help determine a person's ability to pay back debt.

Credit Reporting Bureau

An agency that collects and sells information about the creditworthiness of individuals. Credit reporting bureaus collect information that they consider relevant to a person's credit habits and history, and use this information to assign a credit score indicating how creditworthy a person is. The three most recognized bureaus are Equifax, Experian and TransUnion.

Credit Score

Each credit reporting bureau calculates your credit score from the information contained in your credit report. The most commonly used credit score is FICOŽ (named after its creator, Fair Isaac Corporation). Classic FICO scores range from about 350 to 850. The higher your credit score, the lower your credit risk. The factors used to calculate your credit score are payment history, debt, length of credit history, new credit accounts, and type of credit accounts.

Creditworthy

The ability to demonstrate a history of paying debts in a timely manner and the means to repay debts.

Debt

An amount of money owed to another person or entity.

Default

Failure to repay a loan according to promissory note terms. Defaults are recorded on your credit record and have long-term adverse consequences such as:

Default 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.

Deferment / Deferment Type

Deferment indicates when repayment of the loan begins. You may be able to choose a deferment option while selecting your loan terms. Be aware that the loan will become more expensive the longer interest accrues. You may be able to save money by paying the interest as it accrues or by paying interest and principal while you are in school.

Delinquency

Status of a loan once a loan payment is past due. The number of days past due after which the loan is in delinquency may vary from loan to loan. Delinquency may make the borrower ineligible for a deferment, forbearance, or future financial aid. It may also damage chances for obtaining credit in the future. Delinquencies greater than 30 days are generally reported to national credit bureaus.

Direct PLUS Loan (Parent Loan for Undergraduate Students)

Funds borrowed by parents to help cover the cost of their dependent child's undergraduate education. (Graduate students can borrow PLUS loans to cover their own education-related expenses.) Parents can borrow up to the total cost of education minus any financial aid accepted.

Disbursement

Disbursement occurs when the loan funds are sent from the lender to the borrower or in the case of educational loans to the student’s account at their college. Disbursements for most student loans are made in installments during the course of the academic period.

Disbursement Date

The date the lender issues the loan funds and sends them to the borrower, school, or existing loan holders.

Electronic Signature (E-sign)

An electronic method of signing loan documents that identifies and authenticates an applicant and indicates the applicant's approval of the information contained in the documents. Electronic signature on a contract has the same legal validity as a pen-and-paper ("ink or wet signed") signature.

Eligible School

An institution of higher education declared eligible by the United States Department of Education to offer financial aid.

Enrollment Status

A student's standing as a full-time or part-time undergraduate, graduate, or professional student, whether or not s/he is seeking a degree. The number of credits required to obtain half-time and full-time status is determined by the school.

FDSLP

The Federal Direct Student Loan Program

Federal Loan

An education loan guaranteed against default by the government of the United States. These are generally the lowest cost loans available and should be considered before applying for an alternative loan.

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.

FFELP

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

Financial Aid Administrator (FAA)

An employee of the school who prepares and communicates information and provides advice regarding grants, scholarships, student loans, and work-study programs.

Financial Aid Office

The administrative department of a college or university responsible for determining who is eligible for financial aid, based on federal criteria. The financial aid office also certifies loan amounts for students who are approved and receives disbursements from lenders (if the loan funds are not sent directly to the borrower).

Fixed Interest Rate

A fixed interest rate stays constant for the life of the loan.

Forbearance

Temporary postponement or reduction of loan payments, based on financial hardship during the repayment period.

Fully Deferred Payment Option

This payment option requires no loan payments while the student is in school and during a designated period after graduation.

Fully Disbursed

When all loan funds have been sent to the borrower, to the school, or in the case of consolidation, to the existing loan holder(s).

Grace Period

The period of time after a student graduates, falls below half-time enrollment status, or withdraws from school, and before loan repayment begins.

Gross Income

Income before taxes and deductions.

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.

Housing Expense

Rent, dormitory costs, or mortgage payments.

Index

A published financial rate such as LIBOR (see LIBOR definition below) used to periodically adjust the interest rate of the student loans.

Interest

The fee charged to borrow money. The interest is calculated as a percentage of the principal amount owed.

Interest Capitalization

Interest Capitalization occurs when accrued and unpaid interest and loan fees are added to the outstanding principal balance of the loan. For example, if unsubsidized federal or private student loan interest payments are deferred while the student is in school, the interest that has accrued will be added to the loan principal when the loan goes into repayment. This will make the total amount owed larger. The more the loan capitalizes the more expensive it will be. Capitalization may occur once prior to repayment, after periods of deferment and forbearance or on a regular schedule such as annually.

Interest-Only Payment Option

Pay only the loan interest. This option is for borrowers who seek initial low minimum payments—and the ability to make larger payments—once they become established in their careers.

Interim Period

The phase of the loan during which payments are not required. The interim period begins on the date the loan is disbursed and ends following the grace period.

London Interbank Offer Rate (LIBOR)

The interest rate offered by a specific group of London banks for U.S. dollar deposits of a stated maturity. The LIBOR is used as a base index for setting rates of some adjustable-rate financial instruments. The LIBOR Index can be found daily in The Wall Street Journal's Money Pages.

Loan

A sum of money borrowed. The entity lending the money usually charges interest for use of the money. The amount of money borrowed is typically repaid with interest over a period of time. The "loan amount" may also include fees and late charges that are incurred.

Loan Holder

The company that you will pay under the terms of your original loan. The current loan holder may, or may not, be the original lender.

Loan Period

The academic year, or portion of an academic year, during which the student is enrolled and seeking a loan.

Negative Amortization

When monthly payments are not large enough to cover the interest due each month, the unpaid interest is added to the balance of the loan. When you cannot meet your monthly interest and or principal payments you must contact your lender to avoid other costly penalties.

Non School-Certified Loan

A loan not validated by the school.

Origination Fee

A processing fee calculated as a percentage of principal payable by the borrower and deducted from the loan upon each disbursement. For private loan programs, the lender may charge an origination fee (based on the borrower's credit history) to cover processing and other costs for originating a loan.

Pay as You Earn Repayment

Newly enacted legislation allowing Direct subsidized and unsubsidized borrowers to elect a repayment strategy that will fit their budget, effective 12/21/12.

Prepayment

Making loan payments in part, or in full, prior to the due date. You should know your lender’s prepayment policy. Some lenders may have a prepayment penalty although there are loan providers that allow prepayment without penalties. Federal loans do not have a prepayment penalty.

Prime Rate

In general, the prime rate runs approximately 300 basis points (3 percentage points) above the Federal Funds Rate, the interest rate that banks charge to each other for overnight loans made to fulfill reserve funding requirements. The prime rate is usually the same amongst major banks, although it may vary. Adjustments to the prime lending rate are made by banks at the same time, although the prime rate does not adjust on any regular basis. Some private student loan lenders use the prime rate to calculate their interest rates and the current prime rate is published in the Wall Street Journal.

Principal

The amount of money a lender disburses. This is usually the amount borrowed minus the origination fee (if any). If interest is capitalized at any point, it is added to the principal, thereby increasing the principal amount and total cost of the loan.

Principal and Interest Payment Option (Private Loan)

In this payment option, the borrower begins repaying the principal and interest of the loan after the final disbursement.

Private Student Loan (also referred to as an alternative loan)

A credit-based consumer loan that can be used for education-related purposes, including books, tuition, room, board, and transportation. In general, private loans cover the total cost of education minus any financial aid accepted. Borrowers, cosigners, and/or sponsors must have an established credit history.

Promissory Note

The legal contract a borrower (and cosigner, if any) signs to obtain a loan. The note includes all the terms and conditions of the loan and the borrower's promise to repay the loan.

Reference

Your closest living relative or friend who lives in the United States, but not with you.

Repayment Period

The length of time you have to repay the loan. The Repayment Period 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.

School-Certified Loan

A loan amount approved by the school in connection with the anticipated costs and expenses of education at the school.

Servicer

The loan servicer is the company that manages the billing of a loan. This company may, or may not, be the same as the original lender. The loan servicer is indicated on billing statements.

Sponsor

A creditworthy person who borrows a loan on behalf of a student.

Spread

The percentage points added to the index to calculate the interest rate. The lender establishes the applicable spread on a loan based on the borrower's (and cosigner's, if any) credit history. For example an interest rate of 9.5% may be calculated based on a 5% index plus a 4.5% spread = 9.5% interest rate.

Stafford Loan

A type of federal student loan offered by the government to students to pay for education-related expenses. There are two kinds of Stafford loans-Subsidized Stafford loans and Unsubsidized Stafford loans. The government pays the interest accrued on Subsidized Stafford loans while the student is in school. These loans are awarded based on financial need. On Unsubsidized Stafford loans, the borrower is responsible for paying back the interest accrued while the student is in school. Unsubsidized Stafford loans are not need-based.

Standard Repayment Option

Borrowers make principal and interest payments on a fixed schedule for the life of the loan.

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.

Student Loan

A loan used to pay for education-related expenses. There are 2 types of student loans: federal student loans and private student loans.

Title IV School

An institution of higher education declared eligible by the United States Department of Education to offer financial aid.

Total Payoff Amount (also referred to as total outstanding balances)

The total unpaid amount of all private student loans, plus accrued interest and any fees, due to the current loan holders.

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.

Variable Interest Rate

An interest rate that moves up and down based on the changes of an underlying interest rate index.