Glossary of Terms

Academic Year

A period of at least 30 weeks of instructional time during which an undergraduate full-time student is expected to complete at least 24 semester hours or 36 quarter hours or 900 clock hours.

Capitalization

Adding unpaid interest charges to the principal balance of a loan, thereby increasing the balance due. Capitalization increases the amount of the monthly payments and the total amount repaid over the life of the loan. Students can choose to pay the interest as it accrues, rather than capitalizing it. Our online calculator can help you estimate the cost of an unsubsidized deferment or forbearance.

Cost of Education or Cost of Attendance

The total amount it will cost a student to go to school for the academic year. It includes tuition and fees, room and board (or housing and food for off-campus students), and allowances for books, supplies, transportation, child care, and miscellaneous expenses. The financial aid administrator at the school can increase the Cost of Education to allow for certain unusual expenses, such as medical expenses, child care costs, etc., at the student's request. Documentation may be required.

Deferment

Deferments are periods when payment on the principal of a Stafford Loan is postponed and, except for unsubsidized Stafford Loans, interest subsidy payments are made by the federal government. Once repayment begins, borrowers are entitled to a deferment if they meet the requirements. Borrowers must request a deferment either verbally or on a form provided by the lender or servicer, and must provide documentation to the lender in support of the request. A borrower's eligibility for a deferment depends on when the loan was made, as well as the individual deferment's requirements. Our online calculator can help you estimate the cost of an unsubsidized deferment.

Delinquent

A borrower who fails to make a loan payment on time is considered to be delinquent. Lenders are required to follow due diligence procedures when payments are late. Any loan that is 59 days or less delinquent is reported to the credit bureaus as current. Any loan that is more than 59 days delinquent is reported as delinquent. Loans that are 270 days (or more) delinquent are considered to be in default.

Default

Borrowers who do not make monthly payments as scheduled, and who do not make special arrangements with the lender to suspend payment (see deferments and forbearances), will default after 270 days of delinquency.

Dependency Status

In order to certify eligibility for financial aid, students are determined to be either dependent on their parents for financial support, or independent of parental support (self-supporting). Status as a dependent or independent student is determined by federally established guidelines, including age, if the student is an undergraduate or graduate student, married, has legal dependents, is an orphan or ward of the court, or a veteran. Dependent students' parents must also complete information on the FASFA.

Direct Loan Program (DL)

The DL Program includes subsidized Stafford Loans, unsubsidized Stafford Loans, and Parent/Grad PLUS Loans. Funds for these loans are provided by the Department of Education. The student is the borrower of Stafford and Grad PLUS Loans, and the parent is the borrower (on behalf of the student) of Parent PLUS loans.

Disbursement

The school releases student financial aid funds (including loans) to the student. Schools may release funds in check form, or the funds may be applied directly to the student's university charges through Electronic Funds Transfer (EFT). If the charges are less than the financial aid, the school will release the balance to the student to use toward other educational expenses.

Due Diligence

Documented collection procedures used by lenders and servicers when student loan payments are delinquent.

Entrance/Exit Interview

Counseling sessions conducted by the schools which students are required to attend in order to receive student loans, and before leaving school.

Expected Family Contribution (EFC)

This figure is determined by a formula established by Congress, and indicates the amount the student (and the student's family, if dependent) should contribute to the Cost of Education. This is based on taxable and nontaxable income, assets (such as checking and savings accounts), and benefits (such as Social Security or unemployment).

Free Application for Federal Student Aid (FAFSA)

The Free Application for Federal Student Aid is the application students use to apply for grants, work-study funds and loans. Schools may have additional forms for applicants to complete.

Federal Family Educational Loan Program (FFELP)

The FFELP includes subsidized Stafford Loans, unsubsidized Stafford Loans, and Parent/Grad PLUS Loans. Funds for these loans are provided by private lenders. The student is the borrower of Stafford and Grad PLUS Loans, and the parent is the borrower (on behalf of the student) of Parent PLUS loans. Effective July 1, 2010, all Federal loans will be made through the Department of Education's Direct Loan Program.

Financial Aid Package

The aid awarded to students is called a financial aid package. Because some aid programs have limited funds, eligible students who apply early have the best chance of receiving a package that includes grants, work-study funds, and loans.

Forbearance

A borrower who is willing but unable to make payments, and who does not qualify for a deferment, may request a forbearance from the lender. Forbearance allows temporary cessation of payments or smaller payments for a specific length of time. The lender may grant forbearance of principal, interest or both. The borrower is always responsible for repayment of accrued interest charges. The borrower can make interest-only payments, or the interest will be capitalized (added on to the principal).

Grace Period

A specific period of time after the student leaves school or is enrolled less-than-half-time during which he or she is not required to make loan payments. The grace period is usually six to nine months, depending on the loan type. Supplemental Loans for Students (SLS), Parental Loans for Undergraduate Students (PLUS), and Consolidated loans do not have grace periods.

Guarantee Agencies

The guarantee agency (sometimes called the guarantor) oversees the student loan process, including the approval of the loan, and the issuance of a guarantee to the lender that the student loan will be repaid if the borrower defaults (does not repay the loan). A guarantee agency also provides public information about student loans, keeps permanent records of all loans made through it, enforces state and federal rules, and collects on defaulted loans.

Lender

The lender is the financial institution that provides the funding for student loans, and includes commercial banks, federal savings banks, savings and loans, and credit unions.

Loan Disclosure Statement

Also called a Loan Repayment Statement, this statement is issued to a borrower by the lender when the borrower enters repayment. It gives information about the loan, including guarantee and insurance fees, and the interest rate.

Loan Forgiveness

Student loans may be "forgiven" (written off) by the Federal Government in the event that: the borrower's school closes while he/she is attending, the borrower becomes permanently disabled, or the borrower becomes deceased. Documentation of the situation is required and eligibility is determined by the guarantor.

Parent Loans for Undergraduate Students

PLUS loans are federal educational loans for parents of dependent undergraduate students. Parents may borrow up to the cost of education, minus any other financial aid received. PLUS loans may be used to replace the expected family contribution.

Promissory Note

The binding legal document a student signs for the student loan. It lists rights and responsibilities, and the terms and conditions of the loan. This document should be SAVED!

Satisfactory Academic Progress (SAP)

A policy determined by schools, in conjunction with federal guidelines and regulations. Students must maintain academic progress to continue receiving financial aid, including loans.

Secondary Market

Secondary markets buy student loans from lenders. When this transaction takes place, the secondary market becomes the holder of the loan instead of the original lender. The holder of the loan owns the right and title of the promissory note until the loan has been paid in full. One reason lenders choose to sell their loans is to free up funds to make additional student loans.

Servicer

The servicer is an organization hired by a lender or secondary market to provide day to day processing functions for the student loan program. Loan servicing includes disbursing loan funds, monitoring loans while borrowers are in school, collecting payments, and assisting borrowers during repayment of their loans.

Stafford Loans

Stafford loans are federal educational loans for undergraduate and graduate students. The interest is either subsidized or unsubsidized, and is variable, based on the 91-day Treasury Bill rate plus 3.1% or 3.25%. The interest is capped at 8.25%. Dependent undergraduate students can borrow up to $23,000, independent undergraduates can borrow up to $46,000, and graduate students can borrow up to $138,500, including any undergraduate Stafford loans. Borrowers are charged a 3% origination fee and a 1% insurance fee, which is deducted from the loan before it is disbursed.

Subsidized

The government pays the interest on subsidized Stafford Loans while the borrower is in school, during grace periods, and during periods of deferment. Subsidized loans are based on financial need (see Expected Family Contribution), and the following maximum limits apply: undergraduates, $23,000; graduates, $65,500.

Unsubsidized

Unlike subsidized loans, the government does not pay the interest on unsubsidized loans. Borrowers may use unsubsidized loans to replace the expected family contribution. Loan limits for Stafford Loans are as follows: dependent undergraduates, $31,000; independent undergraduates, $57,500; graduates $138,500. These limits include subsidized loan limits.