Student Loan Terms and Glossary

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Term Definition
Academic Year A one-year period between July 1 and June 30.
Accrued Interest The additional amount of money you have to repay on a loan, on top of the original principal.
Amortization The gradual reduction of loan debt, due to periodic payments of both principal and interest.
Assets Used when calculating the Expected Family Contribution (EFC), and includes: income, checking and savings accounts, stocks, bonds, trusts, real estate (doesn't include a person's home), and material goods owned.
Award Letter A notice from a financial aid office to a financial aid applicant that specifies the financial aid programs and dollar amount of a each financial aid award.
Borrower Benefits A list of reasons and advantages why an individual would be interested in a student loan product. Read about loan consolidation benefits or private loan benefits.
Co-borrower/Cosigner An individual who signs off on the promissory note and can also be liable for a loan's obligation if the primary borrower fails to make payment.
Consolidation Process that allows a borrower to combine a number of existing loans into one loan. Borrowers usually consolidate their loans in order to lower monthly payments. Read more about loan consolidation.
Cost Less Aid Amount The difference between the total cost of education and the financial aid package offered to you by the school, including scholarships, grants, work study and Stafford Loans.  This amount is what you are expected to pay out of pocket or through supplemental loan programs.
Cost of Attendance (COA) The total of all costs a financial aid office estimates students will incur during attendance at the college or university.
Credit Rating A numerical score based on credit limits, balances, and personal information assigned by credit bureaus and credit reporting agencies to determine an individual's ability to pay back loans and credit cards.
CSS Profile An application from the College Scholarship Service (CSS) that's used by some private colleges and universities to determine eligibility for non-federal loans. Read more about the CSS Profile.
Cumulative Debt Limit The total loan amount distributed to a borrower throughout the student's academic career. This amount must not exceed the loan limit of the participating loan program.
Debt to Income Ratio The percentage of a loan applicant's (monthly) income that is used to meet debt obligations. Many alternative loan programs use this calculation to determine an applicant's eligibility for a loan program.
Default Failure to repay a loan according to the terms agreed to when you signed a promissory note. Default may also result from failure to submit requests for deferment or cancellation on time. The consequences of default are severe.
Deferment A temporary period during which a borrower is not required to make payments. Deferments are more common in federal loan programs rather than alternative loans. For Subsidized Stafford Loan borrowers (and Perkins Loan borrowers), many deferments are subsidized, meaning the interest that accrues on the loan during the deferment is paid by the federal government. Some deferments are unsubsidized, meaning the interest that accrues must be paid by the borrower. Read more about student loan deferment.
Delinquency A period during repayment when the borrower, once he/she has met certain conditions, doesn't need to pay the loan principal.
Department of Education The federal agency that establishes financial aid programs and processes financial aid applications.
Dependent Student A 23 year old (or younger) student who requires his/her parents or guardians for financial assistance.
Direct Costs Costs that the college or university directly bills to the student. Tuition and fees are direct costs.
Direct Loans A federal loan issued directly from the government and administered by the college/institution. Students attending a school that participates in this program are required to complete the application process directly with their school. Learn more about the direct student loan program.
Direct Student Loan Consolidation The process of combining multiple direct, federal student loans into one lower monthly payment. Read more about the direct student loan consolidation process.
Disbursement The act of sending federal loan funds to the student. Loan payments are paid both to the student and his/her school. These funds cover educational costs (tuition, fees, etc.) and related living expenses. Any excess funds are given directly to the student.
Electronic Funds Transfer (EFT) The process of electronically transferring loan proceeds from the lender to a school's account or the school's financial institution.
EFC See Expected Family Contribution
Eligible Program A course of study that leads to a degree or certificate and meets the U.S. Department of Education's requirements for an eligible program. To get federal financial aid, you must be enrolled in an eligible program, with two exceptions:
  1. If a school has told you that you must take certain coursework to qualify for admission into one of its eligible programs, you can get a Direct Loan (or your parents can get a PLUS Loan) for up to 12 consecutive months while you're completing that coursework. You must be enrolled at least half-time, and you must meet the usual student aid eligibility requirements.

  2. If you're enrolled at least half-time in a program to obtain a professional credential or certification required by a state for employment as an elementary or secondary school teacher, you can get a Federal Perkins Loan, Federal Work-Study, a Direct Loan, (or your parents can get a PLUS Loan) while you're enrolled in that program.

Entrance Counseling An educational session that first time Stafford borrowers must fulfill before the loan's proceeds can be disbursed. The entrance counseling session provides first time borrowers basic information about student loans and the terms and conditions of the Stafford Loan program.

Read more about the Entrance Counseling Interview.
Exit Counseling Interview An educational session that Stafford Loan borrowers must fulfill around the time of graduation or separation from a college. The exit counseling session provides the borrower detailed information about the loans he/she borrower, the company that will collect the payment and the available repayment alternatives.

Read more about the Exit Counseling Interview.
Expected Family Contribution (EFC) The amount that a student and family can be expected to contribute towards educational expenses over a year's time. The EFC is calculated when the student submits a financial aid application. Read more about the Expected Family Contribution.
Extended Repayment A new option for recent federal loan borrowers.  This option allows borrowers with high balances (greater than $25,000 in federal loans) to extend the repayment term from its standard 10 year term to 25 or 30 years. While extending the repayment term reduces the loan's monthly payment, it also increases the total amount of interest paid on the loan.
FAFSA See Free Application for Federal Student Aid
FDSLP See Federal Direct Student Loan Program
Federal Direct Student Loan Program (FDSLP) The program name for loans that are both guaranteed and funded by the federal government.  If your school is a "Direct Lending School", your Stafford Loan is administered by the Federal Direct Student Loan Program (FDSLP). Funds for "direct loans" are provided by the U.S. government directly to students and their parents through their schools. Applications can be obtained from your school.  Banks and guarantee agencies are not involved in the process.
Federal Methodology Expected Family Contribution (FM EFC) The FM EFC is a specific EFC calculated by the federal government based on information submitted on the FAFSA. The FM EFC calculation is set each year by the U.S. Department of Education and determines eligibility for federal aid programs.
Federal Student Loan Consolidation The process of taking multiple federal student loans and combining them into one lower monthly payment. Read more about federal student loan consolidation.
Federal Supplemental Education Opportunity Grant (FSEOG) A need-based financial aid program funded by the federal government. Colleges receive an annual allocation of FSEOG and, within certain guidelines, develop an awarding policy for this fund.
Federal Work Study (FWS) Federally funded program that allows colleges and universities to create campus based employment programs for financial aid recipients.
Financial Need The difference between a student's Cost of Attendance and Expected Family Contribution. It is the amount of financial aid the student needs to afford attendance at a particular college.
Fixed Interest Refers to loan interest rates that will not change throughout the entire life cycle of the loan.
Forbearance Act of temporary postponing payments, including extending the time needed for making payments. Can also refer to the acceptance of smaller payments than originally scheduled. Forbearance is granted by lenders to reduce the incidence of defaulted loans and simplify the administration of the loan programs. Read more about loan forbearance.
FM EFC See Federal Methodology Expected Family Contribution
Free Application for Federal Student Aid (FAFSA) The FAFSA is the official application form for all federal financial aid programs. For more information on the FAFSA or to fill it out online, please visit
FSEOG See Federal Supplemental Education Opportunity Grant
FASFA A very common misspelling for FAFSA. More info can be found at FAFSA Online.
Government Loans A type of loan that is synonymous with federal loans. More information on government student loans.
Grace Period The time period between a student's graduation (or termination) and the beginning of loan repayment. It usually lasts six to nine months.
Graduated Repayment Plan This option is available for federal loans, and even some alternative loan providers offer graduated repayment. Under graduated repayment, payments are low (usually just enough to cover the loan's accruing interest) when the borrower first enters repayment. Periodically, the payments increase to pay off the loan in the standard 10 year repayment term. The idea of graduated repayment is to have low payments while a borrower is first entering the working world. Then, as income increases, the student loan payments also increase.
Grants A type of financial aid award that does not have to be repaid. Grants are often made based on an applicant's financial need or EFC.
Guarantee Fee A type of fee a borrower pays to a lender. Guarantee fees are collected as a financial reserve to protect the loan program in cases of student default. The Stafford, PLUS and Federal Direct loan guarantee fee is a maximum of 1% of the loan's principal balance.
Half-time Enrollment Usually refers to when a student is taking at least six credit hours of class. In most cases, enrollment must be at least half-time to qualify for financial aid.
IM EFC See Institutional Methodology Expected Family Contribution
Income Sensitive Repayment This repayment alternative is available to some federal loan borrowers (check with your lender or servicer to learn if your loans qualify for this alternative).  Income sensitive repayments bases the monthly payment on the borrower's income in relation to total federal loan indebtedness. Under this option, monthly payments can drop to as low as the amount of interest that accrues on the loan's principal balance. Borrowers must apply for this option annually and must provide documentation of income - usually in the form of a federal tax return.
Independent Student Students that are one of the following: 24 years or older (as of 12/31 of the award's year), a graduate or professional student, married, have legal dependents, a veteran of the U.S. Armed Forces or an orphan.
Indirect Costs Costs associated with a student's enrollment that are not billed by or incurred through the college. Transportation and miscellaneous costs are indirect costs.
Institutional Methodology Expected Family Contribution (IM EFC) A variation of the FM EFC calculated by a college or university. This EFC calculation can incorporate different items than the FM EFC calculation and is used by colleges to allocate institutionally sponsored aid programs.
Interest Rate Federal student loan interest rates are fixed, with the rate of new loans adjusted annually and set by the Department of Education each July 1st.
Lender The bank or lending institution from which a student loan is borrowed.
LIBOR London Interbank Offered Rate; a financial index used as a reference point for determining many private loan interest rates.
Loan Origination Describes a series of steps required to initiate a loan starting from the application to final approval and disbursement.
Loan Proceeds The funds disbursed for a borrower from the lender to a school, agent, or directly to the borrower via a check, master check, or by electronic funds transfer. The loan proceeds disbursed do not include the origination and default fees.
Loan Servicer Once a loan has been approved and disbursed, by the lender or the guarantee agency, it is usually transferred to a servicing company. They are responsible for managing your account while you are in school and during repayment. You will repay the servicing company until the loan is paid in full. Any questions or repayment issues should be addressed to the servicing company. However, if you are having problems with the servicer, you should contact your lender for additional assistance.
Loans Financial aid awards that the student (or other party like a parent, for example) borrows from a lender, the school or other third party. Loans must be repaid by the borrower according to the terms of a promissory note, usually with interest.
Need-blind Admissions An admissions policy in which the ability (or inability) to pay college costs is not considered when determining a student's eligibility for admission.
Origination Fee A fee the borrower pays to the lender for originating a student loan. Origination fees are most often associated with Stafford, PLUS and Federal Direct Student loans. The maximum origination fee for these federal loans is 3% of the loan's principal balance.
Parent PLUS Loan A federally guaranteed loan program that allows parents to borrow funds to help pay educational expenses. The program does require the borrower to pass a simple credit check. The loan's interest rate is fixed at 7.21%.
Past Due Status that occurs if a monthly bill is still unpaid after its due date.
Pell Grant A need-based financial aid program funded by the federal government. The amount of the award is based on the student's enrollment level (full time, three-quarter time, etc.) and the cost of attendance.
Perkins Loan A low-interest federal loan program administered by a college or university, rather than a lender. Read more information about Perkins Loans.
Prepayment Act of paying off a loan ahead of schedule.
Prime Rate The rate at which banks borrow money from each other. Used as an index by variable-rate loan programs.
Principal The loan amount that must be repaid on maturity and the basis of how interest is charged.
Private Loan Also called alternative loans, private loans are non-government loans offered by banks, credit unions and other lenders. They are not based on financial need, but rather on your creditworthiness and ability to repay. Private loans can be used for a wide range of education purposes, including tuition, books, living expenses and computers, and are designed to supplement any federal aid that students receive. Read more about private student loans.
Promissory Note The binding legal document you sign when you get a student loan. It lists the conditions under which you are borrowing and the terms under which you agree to pay back the loan. It will include information about your interest rate and about deferment and cancellation provisions. It's very important to read and save this document because you will need to refer to it later when you begin repaying your loan. Read more about the promissory note.
Repayment Period The time period when interest accrues on loans and principal payments need to be made. The repayment period generally excludes any period of authorized deferment or forbearance; however, interest will continue to accrue for both PLUS and unsubsidized Stafford Loans.
Scholarships A financial aid award that does not have to be repaid. Scholarships are generally made based on an applicant meeting certain eligibility criteria. Search for college scholarships.
Secured Loan Loans that are backed by collateral such as real estate, cars, or other assets. If the borrower defaults on this type of loan, the lender reserves the right to take collateral used in acquiring the loan into their possession.
Servicer Paid by the lender, they oversee the status of a loan, distribute funds, collect payments, and handle deferments, forbearances, and other related issues.
Stafford Loan A federally guaranteed loan program that allows students to borrow funds from lenders. Stafford Loans allow the student to defer payments while he/she is in school. The interest rate for new Stafford Loans is fixed at 4.66%.
Standard Repayment A repayment alternative in which a borrower pays a set amount monthly over the entire repayment term. These monthly payments can be lowered through school loan consolidation. Also called Level Repayment or Simple Repayment.
Stipend A fixed salary often awarded to students who have a fellowship, scholarship, or grant.
Student Aid Report (SAR) The official summary of financial aid eligibility sent to the student by the government once needs analysis has been performed.
Subsidized Stafford Loan This is a need-based student loan. Interest that accrues on subsidized Stafford Loans while the student is in school (at least half-time) is paid by the federal government on the student's behalf. Read more about subsidized Stafford Loans.
Treasury Bill Rate (T-Bill Rate) The rate paid by the government on its short-term borrowing. It is reset periodically. Treasury bill rates are indexes used by variable-rate loan programs.
Unsecured Loan A type of loan that does not require the borrower to provide the lender with collateral. Because of this, these types of loans typically have higher interest rates and often require a Cosigner.
Unsubsidized Stafford Loan A non-need based loan program, so students with no financial need can even qualify for this aid program. Interest that accrues on unsubsidized loans must be paid by the borrower, even while he/she is in school. The borrower may make periodic payments (monthly or quarterly, depending on the lender's policy) or allow the interest to accrue throughout enrollment and have the interest "capitalized" (added to the loan's principle balance). While capitalization eliminates having to make payments while in school but increases the total cost of a loan. Read more about unsubsidized Stafford Loans.
Variable Interest Interest rates that can fluctuate. Most variable-interest loans have an annual or maximum cap, which prevents them from exceeding a set amount within a certain period of time.
Work Study See Federal Work Study