- Academic Year
- The year(s) in which you attend school. An academic year can be based on hours, quarters, semesters or trimesters. If you start school in September and end in May, your academic year would be September to May.
- Accrued Interest
- Interest that is added periodically to a loan’s principal.
- Aggregate Loan Limit
- The total, combined amount you may borrow under a given loan program.
- Alternative Loan
- See Private Loan
- The process by which a loan amount decreases over a given time period based upon payments applied.
- Annual Percentage Rate (APR)
- A finance charge on a loan expressed as an annual rate. Disclosure of a loan’s APR by a bank or lender is required in the U.S. and is meant to serve as a form of consumer protection. A borrower can compare the APR’s of different loan programs to getter a better understanding of how much the loan will cost.
- See Annual Percentage Rate (APR)
- For federal fiancial aid purposes, assets are things such as cash, savings and check accounts, as well as investments including stocks, bonds and real estate (other than the home you live in or a farm which serves as your home), and businesses with more than 100 full time employees. Read more: FAFSA: Student and Parent Assets
- Award Letter
- Subsequent to applying for financial aid using the FAFSA and being offered admission to a college or university, the school’s financial aid office will issue a letter electronically or in writing listing all of the sources of funding available to the student. The award letter will vary slightly from school to school, but will enable the student to determine how much he/she will have to pay in order to enroll at the school making the offer.
- An individual responsible for the repayment of a debt obligation/loan. In most cases a borrower has entered into a legally binding agreement to repay by signing a document affirming a promise to repay. See Promissory Note
- Borrower Benefits
- Incentives offered to borrowers designed to influence their choice in lender or to reward good behavior such as timely repayment of a loan.
- Capitalized Interest
- Interest that is charged on a loan that is then added to the principal. If a borrower, for example, chooses to defer payment on an unsubsidized Stafford loan, the interest charged on the loan while payment is being deferred is added to the principal. When interest is added to principal during on period then interest is added to principal and the already added interest, the interst is compound interest.
- A individual who executes a promissory note with another individual and assumes equal obligations under the terms of that promissory note. A co-borrower is often referred to as a co-signer
- Many private loans require a prospective borrower obtain a creditworthy co-signer. A co-signer executes a promissory note in tandem with the primary borrower of the loan and assumes all obligations under that note in the event the primary borrower fails to repay.
- Often referenced when referring to student loan default rates. A cohort is simply a group of people tied together by certain characteristics. For student loans, that may mean students who attended a particular college or university. Looking at the cohort default rate of borrowers at a
specific school compared to the default rates of borrowers at other institutions can be useful information to assess the efficacy of the program and outcomes for specific groups of borrowers.
- Compound Interest
- Arises when interest is charged on a loan, then added to the principal and then interest is charged
on the principal plus interest.
- Consolidation Loan
- A loan program that allows a borrower to combine one or more federal
or private student loans into a single, new loan. See federal consolidation loans
and private loan consolidation
- See Cost of Attendance
- Cost of Attendance (COA)
- The cost of higher education at a particular college or university. Often abbreviated COA, it can
include tuition, room, board (food), books, personal expenses and fees. The Cost of Attendance is determined by the school’s
financial aid office. Some direct costs like tuition are determined by the school as a whole while other indirect costs
such as books and personal expenses are derived by surveying current students. In conjunction with the
Expected Family Contribution (EFC), it is used to determine financial need.
- Credit Rating
- Credit ratings are attached by rating agencies to certain debt issuers such as government or corporations.
Credit rating is not synonymous with a consumer’s credit score.
- Credit Risk
- A lender’s evaluation of the odds a borrower will not repay a debt. In the student loan industry,
credit risk is also known as default risk.
- Credit Score
- A consumer’s credit score is a number based on the statistical analysis of information contained
in the consumer’s credit files maintained by one or more of the three main credit reporting bureaus
(Trans Union, Experian and Equifax). The most widely known type of credit score is FICO. Whether FICO or another
scoring methodology is applied to the information in your credit report (and many times supplemental
information such as your income and assets), a credit score is simply a predictive measure of a
consumer’s likelihood to repay a debt. For a lender, the credit score is an indication of the risk they
assume in offering credit to an individual.
- Creditworthiness is a subjective description applied to borrowers who meet the credit granting
criteria of a lender. To be deemed creditworthy, a lender will review a prospective borrower’s credit
history and other factors such as income and debt to draw a conclusion regarding whether or not to extend
an offer of credit. to determine whether or not a borrower is a good or poor risk when it comes to making an offer of credit. The
level of risk and the range of risk a lender chooses to expose itself is based on their specific
underwriting criteria. The lower the perceived risk, the more likely a lender is to extend an offer
of credit and, generally, the more favorable terms offered on that credit will be. See Credit and Student Loans
- CSS Profile
- The CSS/Financial Aid Profile® is a financial aid application administered by the College Board. Some member institutions
of the College Board require students complete the CSS Profile in addition to the FAFSA in order to determine a
student’s eligibility for non-federal financial aid. The Profile asks for more information than the
FAFSA and the College Board charges a filing fee in order to process it.
- Cumulative Debt Limit
- Some loan programs, such as the Direct Stafford Loan, have a fixed maximum you may borrow
over all of the periods in which you borrow.
- Debt to Income Ratio
- A borrower’s annual income divided by total outstanding debt. Many lenders use a borrower’s
debt to income ratio as a factor in determining whether they will make an offer of
credit or extend the limit on an existing line of credit.
- Failure to repay a debt according to the repayment terms a borrower agreed to in a
- A period in which no payment is required on a loan. Quite literally, the requirement of repayment is
‘put aside’ officially by a lender or loan servicer. For example, a borrower may not be required to
make payments on a Stafford loan because he/she has asked for and been granted a deferment of their
payments during a period of economic hardship.
- Before a loan is categorized as in default it may be considered delinquent.
Delinquency is when payments are not made on time or no payments are made at all.
- Department of Education (DOE)
- Sometimes abbreviated DoE, the Department of Education is responsible, among other things, for the
administration of all Title IV student aid programs.
- Dependent Student
- A dependents student cannot answer yes to any of the following at the time they file
- I’m 24 years old
- I’m married
- I’m a veteran
- I’m a graduate or professional student
- I have dependents other than a spouse
- I’m an orphan or ward of the court
In extremely rare cases, a financial aid officer may provide a dependent student independent
student status via override. In these case, the student can thoroughly document an involuntary
dissolution of the family including supporting documentation from third parties who are
familiar with and can speak authoritatively on the student’s extenuating circumstances.
- Direct Costs
- Expenses paid directly to a college or university in order to enroll. Direct costs are
items such as tuition, room, board and fees that appear on the student bill.
- Direct Loans
- Federal loans made directly through the Department of Education to a student or parent borrower rather
than through a bank or other lender. All federal student loans are Direct Loans as of 7/1/2010.
- Direct Student Loan Consolidaton
- A program offered by the Department of Education that enables eligible loans to be combined into
one new loan. See our Direct Student Loan Consolidation page for more details.
- The funding of a student loan from the lender to the school. The actual transaction that transfers the net loan proceeds from the lender
to the borrower’s college or university.
- The elimination of a borrower’s obligation to repay a debt.
- See Electronic Funds Transfer
- Electronic Funds Transfer (EFT)
- The transfer of funds from one party to another by an agreed upon digital mechanism.
- Eligible Program
- For the purposes of federal financial aid, an “eligible program” is a program of organized instruction
or study that leads to an academic, professional, or vocational degree or certificate, or other
recognized educational credential. To receive federal student aid, you must be enrolled in an eligible
program or qualify for one of two exceptions:
- If a school has told you that you must take certain course work to qualify for admission into
one of its eligible programs, you can get a Stafford Loan for up to 12 consecutive months
while you’re completing that preparatory course work. You must be enrolled at least
half time, and you must meet the usual student aid
- 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 Work-Study, Federal Perkins Loan, a Stafford Loan, or your parents can
get a PLUS Loan, while you’re enrolled in that program.
- Entrance Interview
- A misnomer of sorts. An entrance interview is given to all new federal student loan borrowers
to educate them on their rights and responsibities relative to their decision to borrow. Counseling
sessions can be done in-person or online.
- Exit Counseling
- Exit counseling is required when you withdraw, graduate or drop below half time attendance. The session
will be conducted either online or in person. Your financial aid office will tell you how you must
meet this requirement. The session will help you understand your rights and responsibilities as a student
loan borrower. If you borrowered a Subsidized or Unsubsidized Stafford loan or a PLUS loan for graduate/professional
students, completing exit counseling is mandatory.
- See Expected Family Contribution
- Expected Family Contribution (EFC)
- The amount of money a family is expected to contribute toward a student’s education for
a given academic period as determined by their answers to the questions presented on the Free
Application for Federal Student Aid. The EFC is a determination of a family’s relative
financial strength and considers their ability to not only pay out-of-pocket but to leverage
other resources such as financing.
- Extended Repayment Plan
- A Direct Loan Program repayment plan that allows an eligible borrower up to 25 years to
fully repay their federal student loan. To be eligible, a borrower must have more than
$30,000 in Direct Loan debt. Two payment options are available under this plan: fixed or graduated.
Fixed payments mean you make the same payment amount over the life of the loan. Graduated payments
start low and increase every two years.
- See Free Application for Federal Student Aid
- Federal Direct Loan Program
- Federal Direct Loan Program (FDLP)
- The Direct Loan Program consists of several types of student loans including
Subsidized and Unsubsidized
Stafford loans, PLUS loans for parents and graduate/professional students as well as consolidation loans for both
student and parents. Direct Loans are funded “directly” by the federal government.
- Federal Family Education Loan (FFEL)
- Prior to 7/1/2010, federal student loans such as Stafford and PLUS loans were made by banks and
other lenders as well as through the Department of Education’s Federal Direct Loan Program (FDLP). FFEL
loans were made by banks and other lenders.
- Federal Student Aid
- Financial aid offered through the U.S. Department of Education and authorized by the Higher Education
Act of 1965 as amended.
- Federal Student Loan Consolidation
- See Direct Student Loan Consolidation
- Federal Supplemental Education Opportunity Grant (SEOG / FSEOG)
- SEOG is a campus-based aid program. A studen must file a FAFSA and demonstrate exceptional need
to qualify for this program. The school where the student attends will determine the student’s eligibility
as well as the amount awarded. Notice of the award of SEOG will be included on the student’s
financial aid award letter.
- Federal Work-Study (FWS)
- A federal student aid program that provides funds for part-time employment for needy students. A student’s
eligibility for FWS will be determined by the financial aid office at the school at which s/he attends
and be offered as part of the financial aid award letter.
- Financial Need
- Financial need is determined by subtracting your EFC from your school’s COA. If the result of the
equation is 0 or negative, the student is determined to not have need for the purposes of financial aid. Students
with financial need may be offered financial assistance where need is an eligibility component to help offset college costs.
- Fixed Interest
- A rate of interest that does not change over the life of the loan. Interest is set at the
time the loan is disbursed and does not change.
- Free Application for Federal Student Aid (FAFSA)
- Most commonly referred to as the FAFSA, it is the application you complete in order to determine your
eligibility for federal financial aid for college. Some states and outside scholarship programs
also use the processed results of your FAFSA to determine your eligibility for their programs. It also
serves as your application for federal student loans. Always file a FAFSA even if you think you
may not qualify for assistance. Read more about the FAFSA form.
- Allows a borrower to temporarily stop making payments on a loan., make smaller payments or extend the time
for making payments. Illness and financial hardship are common reasons for getting a forbearance.
- See Federal Work Study
- Government Loans
- Usually refers to loans made by the federal goverment such as those available through
the Direct Loan, HEAL or Perkins loan programs, but can also refer to loans made
by some state governments/agencies such as New Jersey’s NJCLASS.
- Grace Period
- When a students graduates, stops attending or fails to meet a minimum attendance requirement such as
half-tiem enrollment, a grace period in which repayment on the student’s loan is not required may
be provided under certain loan program. For example, Direct Stafford loans have a six month
grace period and Perkins loans have a nine month grace period. Students who borrowed under either
of those programs would not be required to make their first loan payment until the grace period
- Graduate PLUS Loan
- A Direct Loan Program where the graduate student is the borrower. Learn more about Direct PLUS Loans for
- Graduated Repayment Plan
- A Direct Loan Program repayment plan where payments start low then increase every two years. The minimum
monthly payment will not be less than the interest that accrues between payments nor will it exceeed three times any other payment on the loan.
- Money to be used for higher education that does not need to be repaid.
- Guarantee Agency
- A third-party established to take partial responsibility of repaying a student loan debt in the
event the original borrower does not repay a loan.
- Guarantee Fee
- A fee charged at disbursement of a loan held to pay for defaults. By charging a
guarentee fee, guarantee agencies can act as a backstop in the event a borrower
fails to repay a loan.
- Half-time Enrollment
- At schools measuring progress in credit hours and semesters, trimesters, or quarters, “half-time” is at least six semester hours or quarter hours per term for an undergraduate program. At schools measuring progress by credit hours but not using semesters, trimesters or quarters, “half-time” is at least 12 semester hours or 18 quarter hours per year. At schools measuring progress by clock hours, “half-time” is at least 12 hours per week. Note that schools may choose to set higher minimums than these. You must be attending school at least half-time to be eligible for a Stafford Loan. Half-time enrollment is not a requirement to receive aid from the Federal Pell Grant, Federal Supplemental Educational Opportunity Grant, Federal Work-Study and Federal Perkins Loan programs.
- Income-based Repayment Plan
- A change in your repayment plan when you are experiencing a partial financial hardship where
your payments are based on your income. The monthly payment may be adjusted annually. The maximum
repayment period under this plan may exceed 10 years.
- Income Contingent Repayment Plan
- Annually, your Direct Loan (PLUS loans aren’t eligible) monthly payments will be calculated on
the basis of your adjusted gross income (AGI, plus your spouse’s income if you’re married), family size,
and the total amount of your Direct Loans. Under the ICR plan you will pay each month the lesser of:
- the amount you would pay if you repaid your loan in 12 years multiplied by an income percentage factor that varies with your annual income, or
- 20% of your monthly discretionary income*
If your payments do not cover the interest that has accrued on your loans, the unpaid amount will be
added to the total amount you owe once each year. However, capitalization will not exceed 10 percent of
the original amount you owed when you entered repayment. Interest will continue to accumulate but
will no longer be capitalized. The maximum repayment period is 25 years. If you haven’t fully repaid
your loans after 25 years (time spent in deferment or forbearance does not count) under this plan, the
unpaid portion will be discharged. The amount discharged will be considered as income and you may
be required to pay taxes on the discharged amount.
- Income Sensitve Repayment Plan
- See Income Contingent Repayment Plan
- Independent Student
- For the purposes of federal financial aid, a student is considered independent if anyof the following statements about the student are true:
- The student is 24 at the time the FAFSA is filed
- The student is enrolled in graduate or professional program
- The student is married
- The student has dependents other than a spouse for which the student provides for more than 50% of the dependent’s support
- The student is a member or veteran of the US armed forces
- The student is an orphan or ward of the court
Financial aid administrators may also use professional judgment to override a dependent student’s status in
exceptional cases. Generally, a student must demonstrate there has been an involuntary dissolution of their
family that can be documented by a third-party who is familiar with the situation and can speak from a
position of authority.
- Indirect Costs
- These are costs you incur for attending school that aren’t billed directly to you. They include things
like books, computers, and toiletries. Consideration for these costs is provided for in a school’s
Cost of Attendance.
- In-school Period
- Half-time or greater enrollment that does not necessarily include summer sessions. For the purposes
of Direct Loans, a student who is in-school is not required to make payments on their loans while they
are in school.
- A fee expressed in percentage points charged by a lender to a borrower in consideration for the
use of loan funds.
- Interest Benefits
- See Borrower Benefits
- An entity that provides funding to a borrower in the form of a loan that must be repaid.
- London Inter Bank Offered Rate. An interest rate commonly used as the index or base for establishing
the interest rate for private student loans.
- Money provided to a borrower by a lender that must be repaid with interest over a specified period of tome.
- Loan Limits
- The maximum amount available to borrow in a specified time period.
- Loan Origination
- The point in time at which a loan is officially made/given to a borrower.
- Loan Principal
- The amount of a loan before interest or fees are considered.
- Loan Proceeds
- Sometimes referred to as net loan proceeds, the money made available through the granting of a loan
after fees and/or any administrative expenses are taken away.
- Loan in Repayment
- A loan is repayment when a lender has set a repayment schedule and is expecting payment of the loan
principal plus interest.
- Loan Rehabilitation
- Loan rehabiliation describes the steps necessary to get your student loan out of default. Getting out of default
means your default will no longer be reported to the credit reporting agencies, you will be eligible for the
same benefits available before you defaulted which may include deferment, forbearance and Title IV eligibility,
wage garnishment will end and the IRS will no longer withold your federal refund.
- Loan Servicer
- An entity who processes payments on a loan and manages any customer service or administrative issues
relative to a given loan.
- Master Promissory Note (MPN)
- In the Direct Loan Program, a MPN is a borrower’s promise to repay any loan provided under the program.
The MPN can be enforced for multiple disbursements/loans under the Direct Loan Program and is good
for period of ten years from the time at which the first loan under the program is taken. The MPN saves
a borrower the hassle of having to sign a promissory note every time they wish to borrow.
- See Master Promissory Note
- Need Blind Admissions
- Admission decisions made without the benefit or bias of reviewing a student’s
financial situation. Some school’s commit to meeting the full demonstrated financial
need of the students they admit under their need blind policy while others do not.
- Origination Fee
- A fee deducted or added to loan upon disbursement meant to cover
the cost of processing the loan.
- Parent PLUS Loan
- See our full section: Direct PLUS Loans for Parents
- Past Due
- Any obligation that is not paid on time.
- Pell Grant
- See our full section: Federal Pell Grant
- Perkins Loan
- See our full section: Federal Perkins Loan
- Payment on a loan before it is due or in excess of the amount due.
- Prime Rate
- An index (reference) rate lenders use to establish the interest rate for some private student loans. Generally, the prime rate
runs about 3% higher than the federal funds rate which is the rate banks charge each other for overnight borrowing used to fulfill
reserve funding requirements.
- Private Loan
- A loan made to a student or parent borrower by a bank or other lender where the primary basis of consideration for the loan
is the borrower’s creditworthiness. See our section: Private Student Loans
- Promissory Note
- A legal document executed by a borrower that obligates the borrower to repay a loan. A promissory note is literally a borrower’s
promise to repay a loan. The promissory note will also include the terms and conditions under which the repayment of an
obligation is expected.
- Public Service Loan Forgiveness
- In 2007, Congress created the Public Service Loan Forgiveness Program to encourage individuals to
enter and continue to work full-time in public service jobs. Under this program, borrowers may
qualify for forgiveness of the remaining balance due on their eligible federal student loans after
they have made 120 payments on those loans under certain repayment plans while employed full time
by certain public service employers. For further details see:
Public Service Loan Forgriveness
- Repayment Period
- The time from beginning to end in which a loan is repaid.
- Repayment Schedule
- A schedule of payments from the first payment to last describing the amount and times at which a loan
is to be repaid.
- Money intended to offset the costs of education that generally does not have to be repaid. Scholarships
can be offered for a myriad of reason. From academics, to financial need, to creative writing and athletics there
are thousands of scholarships available to students of all ages and needs. See: Scholarships
- Secured Loan
- A loan granted in exchange for the promise of surrendering an asset of equal or greater value to
the lender in the event the borrower is unable to repay the loan.
- See Federal Supplemental Education Opportunity Grant
- See Loan Servicer
- Stafford Loan
- See: Direct Stafford Loans
- Subsidized Stafford Loan
- A Stafford Loan based on
financial need where there borrower is not responsible for paying interest on the loan during an in-school period.
- Standard Repayment Plan
- Fixed even payments of a loan over a 10 year repayment period under the Direct Loan Program.
- A form of compensation provided to some students for work performed during an
internship, assistantship, or apprenticeship. A stipend payment is generally
less than what would be paid as a salary for work performed outside of an
- Title IV Student Aid
- Refers to the section under the Higher Education Act of 1965 that covers the administration of
federal student assistance. The HEA is reauthorized about once every five years so that it may
adapt to the times. All federal student aid programs are governed by Title IV of the HEA.
- Unsubsidized Stafford Loan
- A Stafford Loan that isn’t based on financial need where the borrower is responsible for
the interest that accrues during the in-school period. While the borrower can
defer payment of the interest while in school, the interest will be charged on the loan and added to the
- Variable Interest
- An interest rate that may change from time to time as specfied in a promissory
note signed by a borrower. Variable rates may stay the same, go up or go down depending on how they are
determined and the underlying rate at the time at which the changes to the rate occur.
- Work Study
- An offer of a grant to be earned through work either through Federal Work Study
or a program provided by a college or university. Federal Work Study and what is called by some colleges “College” or “Campus” Work
Study will appear on a student’s financial aid award letter but will not be directly applied to the student’s bill. Rather,
the student must earn the award through work performed on campus or through approved off campus programs. The money will
be paid to the student in the form of a paycheck which can then be used to help pay for education-related expenses.