Student Loans & Financial Aid Glossary

Student loans and financial aid can be difficult enough without having to deal with confusing terminology. Our helpful glossary explains the ins and outs in clear langauge that anyone can understand.

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

Academic Year
Accrued Interest
Aggregate Loan Limit
Alternative Loan
Amortization
Annual Percentage Rate (APR)
APR
Assets
Award Letter
Borrower
Borrower Benefits
Capitalized Interest
Co-borrower
Co-signer
Cohort
Compound Interest
Consolidation Loan
COA
Cost of Attendance (COA)
Credit Rating
Credit Risk
Credit Score
Creditworthy
CSS Profile
Cumulative Debt Limit
Debt to Income Ratio
Default
Deferment
Delinquency
Department of Education (DOE)
Dependent Student
Direct Costs
Direct Loans
Direct Student Loan Consolidaton
Disbursement
Discharge
EFT
Electronic Funds Transfer (EFT)
Eligible Program
Entrance Interview
Exit Counseling
EFC
Expected Family Contribution (EFC)
Extended Repayment Plan
FAFSA
FDLP
Federal Direct Student Loan Program (FDLP)
Federal Family Education Loan Program (FFEL)
Federal Student Aid
Federal Direct Student Loan Consolidation
Federal Supplemental Education Opportunity Grant (SEOG / FSEOG)
Federal Work-Study (FWS)
Financial Need
Fixed Interest
Free Application for Federal Student Aid (FAFSA)
Forbearance
FWS
Government Loans
Grace Period
Graduate PLUS Loan
Graduated Repayment Plan
Grants
Guarantee Agency
Guarantee Fee
Half-time Enrollment
Income-Based Repayment Plan
Income-Contingent Repayment Plan
Income-Sensitve Repayment Plan
Independent Student
Indirect Costs
In-school Period
Interest
Interest Benefits
Lender
LIBOR
Loan
Loan Limits
Loan Origination
Loan Principal
Loan Proceeds
Loan in Repayment
Loan Rehabilitation
Loan Servicer
Master Promissory Note (MPN)
MPN
Need Blind Admissions
Origination Fee
Parent PLUS Loan
Past Due
Pay As You Earn Repayment Plan
Pell Grant
Perkins Loan
Prepayment
Prime Rate
Private Loan
Promissory Note
Public Service Loan Forgiveness
Regular Student
Repayment Period
Repayment Schedule
Scholarships
Secured Loan
SEOG
Servicer
Stafford Loan
Subsidized Direct Student Loan
Standard Repayment Plan
Stipend
Title IV Student Aid
Unsubsidized Direct Student Loan
Variable Interest
Work Study
— A —
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
Amortization
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.
APR
See Annual Percentage Rate (APR)
Assets
For federal financial aid purposes, assets are things such as cash, savings and checking 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.
— B —
Borrower
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.
— C —
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 Direct Student 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 interest is compound interest.
Co-borrower
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
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.
Cohort
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
COA
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.
Creditworthy
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.
— D —
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.
Default
Failure to repay a debt according to the repayment terms a borrower agreed to in a promissory note.
Deferment
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.
Delinquency
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 the FAFSA:
  • 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 Consolidation
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.
Disbursement
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.
Discharge
The elimination of a borrower’s obligation to repay a debt.
— E —
EFT
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 eligibility requirements.
  • 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 responsibilities 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 borrowed a Subsidized or Unsubsidized Stafford loan or a PLUS loan for graduate/professional students, completing exit counseling is mandatory.
EFC
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 our full section: Extended Repayment Plan
— F —
FAFSA
See Free Application for Federal Student Aid
FDLP
Federal Direct Student Loan Program
Federal Direct Student Loan Program (FDLP)
The Direct Student Loan Program consists of several types of student loans including
Direct Subsidized and Unsubsidized Student Loan
, Direct PLUS loans for parents and graduate/professional students as well as Direct Consolidation Loans for both
student and parents. Direct Loans are funded “directly” by the federal government.
Federal Family Education Loan (FFEL)
Prior to July 1st, 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. All federal student loans are now provided through the federal government.
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 student 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.
Forbearance
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.
FWS
See Federal Work Study
— G —
Government Loans
Usually refers to loans made by the federal government such as those available through the Direct Student Loan Program, 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 student graduates, stops attending or fails to meet a minimum attendance requirement such as half-time 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 has expired.
Graduate PLUS Loan - Direct PLUS Loan for Graduate and Professional Students
A Direct Student Loan Program where the graduate student is the borrower. Learn more about Direct PLUS Loans for Graduate Students.
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 exceed three times any other payment on the loan. See our full section: Graduated Repayment Plan
Grants
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 guarantee fee, guarantee agencies can act as a backstop in the event a borrower fails to repay a loan. These fees are very uncommon today.
— H —
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.
— I —
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. See our full section: Income-Based Repayment Plan
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:
  1. 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
  2. 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. See our full section: Income-Contingent Repayment Plan

Income-Sensitve Repayment Plan
Offer options for FFEL borrowers to repay on terms similar to the Income-Contingent Repayment Plan. See our full section: Income-Sensitive Repayement Plan
Independent Student
For the purposes of federal financial aid, a student is considered independent if any of 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.
Interest
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
— J —
— K —
— L —
Lender
An entity that provides funding to a borrower in the form of a loan that must be repaid.
LIBOR
London Inter Bank Offered Rate. An interest rate commonly used as the index or base for establishing the interest rate for private student loans.
Loan
Money provided to a borrower by a lender that must be repaid with interest over a specified period of time.
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 borrowed before considering additional costs such as interest or fees.
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 rehabilitation 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 withhold 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.
— M —
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.
MPN
See Master Promissory Note
— N —
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.
— O —
Origination Fee
A fee deducted or added to loan upon disbursement meant to cover the cost of processing the loan. Direct Student Loans deduct the fee. Most, if not all, lenders who offer private student loans that charge this fee will add it to the principal.
— P —
Parent PLUS Loan - Direct PLUS Loan for Parents
See our full section: Direct PLUS Loans for Parents
Past Due
Any obligation that is not paid on time.
Pay As You Earn Repayment Plan
A repayment plan for Direct Loans where your monthly payment is based on your income and family size. See our full section: Pay As You Earn Repayment Plan
Pell Grant
See our full section: Federal Pell Grant
Perkins Loan
See our full section: Federal Perkins Loan
Prepayment
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 Forgiveness
— Q —
— R —
Regular Student
A student who is enrolled or accepted for enrollment at an institution for the purpose of obtaining a degree, certificate or other recognized education credential offered by that institution.
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.
— S —
Scholarships
Money intended to offset college costs 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, incomes, needs and backgrounds. See: Scholarships
Secured Loan
A loan offered 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.
SEOG
See Federal Supplemental Education Opportunity Grant
Servicer
See Loan Servicer
Stafford Loan - Now Called Direct Subsidized and Unsubsidized Loans
See: Direct Student Loans
Subsidized Direct Student Loan
A Direct Subsidized Loan based on
financial need where the 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. See Standard Repayment Plan
Stipend
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 educational setting.
— T —
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.
— U —
Unsubsidized Student Loan
A Direct Student 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 principal.
— V —
Variable Interest
An interest rate that may change from time to time as specified 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.
— W —
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.
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— Y —
— Z —