Student Loan Glossary

The time period each academic year that students attend an educational institution, usually from August to May.

The process of interest adding up. When student loans are in repayment, interest accrues on them every day, and (depending on the loan type) interest may accrue while they're in deferment and/or while you're in school. If you don't pay the interest accruing on your loans, it may be added (or capitalized) into your principal balance. If that happens, you'll begin being charged interest on your unpaid interest.

The process of paying off your loans in regular installments over a period of time.

The maximum loan amount allowed by a lender (or a loan program) during a calendar or academic year.

The annual cost to you in order to borrow money for your student loan.

A letter you receive from a school that details the types of financial aid you are eligible to receive. This includes details about the grants and scholarships you've been awarded as well as any eligible federal loans. You'll receive an award letter every year you attend school if you apply for financial aid.

The academic year to which financial aid may be applied.

The person who signed and agreed to be responsible for repaying a loan.

Federal financial aid programs administered directly by school. The federal government provides eligible schools with a fixed amount of campus-based aid each year. Financial aid administrators at the school then award those funds to students with demonstrated financial need in the form of Perkins loans, supplemental education opportunity grants, and work-study.

Cancellation of your federal student loan means you are no longer required to repay some or all of your loan.

Capitalization happens when the accrued interest is added to the principal balance, thus increasing the overall balance owed.

The process that occurs when unpaid interest is added to the principal balance of your loan (increasing the overall principal balance that your future interest will accrue on). For federal loans, capitalization happens at the end of a grace, deferment, or forbearance period, and when a loan is consolidated or goes into default, as well as other circumstances.

A cosigner is a creditworthy individual who agrees to share repayment responsibility for the student loan alongside the primary borrower.

The process of combining multiple student loans into one loan.

An estimate of the total cost provided by a school to attend for a specific period.

A detailed report of an individual's credit history compiled by one of the credit reporting agencies. It includes the type of credit you use, the length of time your accounts have been open, and your payment history.

An indicator of your ability to repay your debt. Your credit score takes into account the information on your credit report. Lenders may use a credit score to determine whether you're eligible for a loan and the interest rate. Typically a higher score makes it easier to qualify for a loan and may result in a better interest rate. Most credit scores range from 300-850.

A calculation used by some lenders to determine a person's ability to repay debt. To calculate your debt-to-income ratio, you add up all your monthly debt payments and divide them by your gross monthly income.

Failure to make payments on a loan according to your loan terms. Federal Direct and FFELP loans generally enter default status if monthly payments are more than 270 days past due. Private loans and some federal student loans may have different time frames for default. A loan can also go into default if you fail to meet other terms of your promissory note or written agreements with the loan holder. Refer to your loan's promissory note to determine its default time frame.

Deferment allows you to temporarily stop making payments or to temporarily reduce your monthly payment amount for a specified period on a student loan. Subsidized federal student loans do not accrue interest while in deferment.

The status a loan enters if you fail to make even a single full payment on time. If you miss a few payments, your loan will most likely remain in delinquency until it enters default. You should contact your lender or servicer right away if you fall behind on your repayment to discuss a plan to get back on track.

A federal student loan, made through the William D. Ford Federal Direct Loan Program, that eligible students and parents borrow directly from the U.S. Department of Education at participating schools. Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans are types of Direct Loans.

A loan made by the U.S. Department of Education to graduate or professional students and parents of dependent undergraduate students to help pay for education expenses not covered by other financial aid.

A student loan has been disbursed when your lender sends money to your school, gives money to you directly, or a combination of both. A single loan may have multiple disbursements, for example one payment for fall and one payment for spring.

The official name of the cancellation of some or all of your student loan debt due to certain circumstances like a school closure, death of the borrower, or total permanent disability.

The amount of money you have left over after paying for your basic expenses. You may need to provide this information when applying for certain student loan repayment plans that determine your monthly payment amounts based on how much you earn. Note: The government defines discretionary income in different ways for different repayment plans.

Similar to a cosigner, an endorser is someone who agrees to repay the federal PLUS loan if you do not repay it.

Reported by the school the student attended, indicates whether the student is (or was) full-time, three-quarter time, half-time, less than half-time, withdrawn, graduated, etc.

The amount of money a family is expected to pay for their student's college education each academic year. The number is used by your school to calculate the amount of federal student aid you are eligible to receive. This number results from the financial information you provided in your FAFSA application. Your EFC is reported to you on your Student Aid Report (SAR).

A program that provides undergraduate and graduate students with part-time employment during the academic year to help cover school-related expenses.

Assistance provided in the form of grants, scholarships, work-study, and loans to provide funding for an education.

The entire combination of grants, scholarships, loans, and work-study funding you can receive from all sources (federal, state, institutional, and private). Your financial aid package is detailed in the financial aid award letter you receive each academic year.

Your cost of attendance minus your EFC. This determines your eligibility for financial aid such as Stafford loans, Perkins loans, work-study, grants, and scholarships.

An interest rate that stays the same for the entire repayment period.

A forbearance allows you to temporarily stop making payments on your loan or reduce your monthly payment. Each loan servicer has their own policy on forbearance, meaning some are required to offer you this benefit and others are not. Forbearance does not affect your credit score, however you will continue to accrue interest during your forbearance period, which will increase the amount you owe overall.

Forgiveness of your federal student loan means you are no longer required to repay some or all of your loan.

The application you need to fill out to apply for any form of federal student aid, including loans, grants, or scholarships, You need to complete this form each year to qualify for financial aid.

The time you get before you have to start making payments on your loan. It typically starts the day after your graduate, leave school, or drop below half-time enrollment, and lasts for six to nine months. While you're not required to make payments during this time, it certainly doesn't hurt to, you will be responsible for paying any interest that accrues during your grace period. If you choose not to pay the interest that accrues during your grace period, the interest will be added to your principal balance. Grace periods are unfortunately not available for every loan out there, so be sure to check if your loan has a grace period before you assume you're in the clear.

PLUS loans that are only availale to eligible graduate or professional students. They have a higher interest rate than Stafford loans, but fewer limitations on how much you can borrow. You must apply for these loans, and they take your credit history into account, which Stafford loans do not.

A student who is enrolled in a program or course of study above the baccalaureate level at an institution of higher education.

A repayment plan that allows you to make small monthly payments that increase over time, ensuring you still repay your federal student loan within 10 years. However, during those 10 years you will pay more interest than you would with standard repayment.

A type of financial aid that you do not have to repay. You may be able to qualify for grants based on your academic or financial need.

An option that allows you to postpone your student loan payments until after you graduate college or until your enrollment status drops below half time (as specified by your school).

The cost to borrow money. It is calculated as a percentage of the principal (the amount you borrow).

An income tax deduction that covers some or all of the money you pay in interest on student loans each year. This means that you don't have to pay taxes on the money you pay in student loan interest. Eligibility for this tax benefit is based on your student loan payments, your income, and other tax factors. Ask your tax professional for details.

A company or organization that lends money. A lender could be the borrower's school; a bank, credit union, or other lending institution; or the U.S. Department of Education.

The interest rate banks charge each other for loans. LIBOR was most commonly used as an interest rate index for variable interest rate loans, but will be retired by 2023. It will be replaced by a new, more reliable index called SOFR.

Money that you borrow and must repay.

The portion of the academic year that the requested loan will cover.

A legal document in which you promise to repay your federal student loan(s) and any accrued interest and fees to your lender or loan holder. There is one MPN for Direct Subsidized/Unsubsidized Loans and a different MPN for Direct PLUS Loans. Most schools are authorized to make multiple federal student loans under one MPN for up to 10 years. The MPN contains a Borrower's Rights and Responsibilities Statement that explains the terms and conditions of the loan(s) you receive.

Money for college - usually in the form of scholarships or grants - that schools and other organizations award based on your academic and extracurricular achievements, not necessarily your financial need. This is aid that does not have to be paid back.

An upfront fee charged by a lender for processing a new loan.

Your enrollment status if you take less than a full course load. Not every school uses the same standards, so check with your school to find out your enrollment status.

A grant provided by the federal government to students with the greatest financial need. You must complete and submit the FAFSA to be considered.

A low-interest federal student loan for undergraduate and graduate students with exceptional financial need. This program ended in September 2017.

Federal student loans that provide borrowers with funds to meet their school's cost of attendance, minus any other aid they receive. There are two types of PLUS loans: Parent PLUS and Grad PLUS. PLUS loans take the borrower's credit history into account, so you may need an endorser to qualify.

When a loan is prepaid in part or in full prior to the loan maturity date. There is typically no penalty associated with doing this, although we recommend that you check with your lender or review your promissory note. As a result, you may save yourself significant interest.

The Prime Rate, as published in The Wall Street Journal, is the interest rate banks charge their most creditworthy customers.

The total amount you currently owe, minus any interest that's yet to accrue. Every time you make a payment, a portion of that money goes toward the interest that is accruing on your loan and any fees you may have been charged, and the rest is used to pay down your principal balance.

Student loans provided by private lenders (like College Ave Student Loans) instead of the federal government.

To pay back money you borrowed by making scheduled payments to a loan holder or servicer.

The length of time you have to repay your student loans. In general, the longer you take to repay your loans, the more you'll wind up paying in interest over the course of your repayment period.

Money you're awarded to attend an academic institution. You don't have to repay scholarships - it's free money.

The organization that sends you your student loan bills, collects your loan payments, and provides customer service on behalf of your lender. In other words, they handle the billing for your loan.

The Secured Overnight Financing Rate (SOFR) is a secured interbank overnight interest rate and reference rate established as an alternative to LIBOR, which is published in several currencies and is the foundation of financial contracts all over the world. It is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities.

The most common type of federal student loans. The repayment terms of your Stafford loans can vary based on whether they are subsidized and when you borrowed them.

The federal student loan repayment plan that you'll be automatically enrolled in if you don't choose a different one. This repayment period is typically 10 years.

A list of all the financial and personal information that you and your family reported on your FAFSA. You and your school both get a copy of the SAR. After you receive your SAR, you may be able to make corrections or changes to your information before your final award is processed.

Federal student loans that the government pays the interest on while you're in school and during approved deferment periods.

A charge for receiving instruction at an educational institution, this can include a cost per class or credit hour, but also may include the costs of materials or supplies required of all students in the same course of study.

A student who is enrolled in an undergraduate course of study at a college/university or career school that usually doesn't exceed four years and that leads to an undergraduate degree.

Federal student loans that are not based on financial need. You're responsible for paying all interest that accrues on your unsubsidized loans - including interest that accrues while you're in school and during your grace period and deferment periods.

An interest rate that can change during the life of the loan. Changes to the rate are typically based on a publicly available interest rate index such as the prime rate or SOFR.

A federal student aid program that provides part-time employment while you are enrolled in school to help pay your education expenses.