A
Accrued Interest:
Interest which accrues on the loan and is payable by the borrower or, in
the case of subsidized Federal Stafford Loans, by the federal government,
during in-school, grace, and deferment periods.
Amortization:
The reduction and retirement of a debt through periodic payments
of interest and principal.
APR (Annual Percentage Rate):
A percentage calculation that reflects the total cost of a loan
(interest plus all fees) on an annual basis.
Aggregate Loan Limit:
The Department of Education's lifetime limit for borrowing Federal
Stafford Loans and Federal Perkins Loans.
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B
Borrower:
The person who receives a loan.
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C
Capitalization:
The process of adding unpaid interest to the principal loan amount, thereby
increasing the balance that future interest accrues on and the total amount
to be repaid.
Consolidation:
Refinancing multiple loans into one new loan with a new repayment term and
interest rate.
Cosigner:
A creditworthy party, other than the borrower, who assumes responsibility
for repaying a loan in the event the borrower does not pay.
Credit Bureau:
The institution that tracks and reports the manner in which borrowers repay
their loans. This information becomes part of each borrower's credit record.
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D
Default:
Failure to repay a loan according to the terms of the promissory note.
Deferment:
An authorized period of time during which loan payments may be postponed.
Delinquency:
Failure to make a loan payment when it is due.
Disbursement:
Loan funds issued by a lender through check (normally made co-payable to
the school and the borrower) or Electronic Funds Transfer (EFT). Disbursements
are generally made in equal multiple installments.
Disclosure Statement:
A document listing the principal amount of the borrower's loan, fees that
have been deducted, the interest rate, the total amount of indebtedness
(principal plus interest), and repayment rights and responsibilities. This
document is sent to the borrower before loan proceeds are disbursed.
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E
EFC (see Expected Family Contribution)
EFT (see Electronic Funds Transfer (EFT):
Electronic Funds Transfer (EFT):
Disbursement of loan funds electronically rather than through
a check.
Entrance Interview:
A loan repayment and debt management counseling session required
by federal regulations that is arranged and conducted by a school's
financial aid office for students who are receiving their first
federally guaranteed student loan associated with attendance
at the school. This counseling session must be conducted before
the student can receive the proceeds of the first disbursement
of any federally guaranteed education loan.
Equal (or level) Repayment:
A repayment plan in which an equal or level amount is paid each
month for the entire repayment term. All payments include both
principle and interest.
Extended Repayment:
Loan repayment for borrowers who have a total education debt
exceeding $30,000. This plan allows borrowers to repay their
loans over a maximum term of 25 years, instead of 10 years, using
either graduated or fixed payments that are adjusted on an annual
basis. Available only to new Stafford Loan borrowers as of Oct.
1, 1998.
Exit Interview:
A loan repayment and debt management counseling session required
by federal regulations that is arranged and conducted by a school's
financial aid office for students who have received federally
guaranteed loans while attending school. This counseling session
must be conducted before the student graduates or leaves the
school, whenever possible.
Expected Family Contribution:
The amount students and their families are expected to pay toward college
expenses. It is calculated using a formula established by Congress or by
a school or group of affiliated schools. The difference between the cost
of attendance and the expected family contribution (EFC) determines financial
need.
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F
Federal Family Education Loan Program (FFELP):
Education loans provided by private lenders and guaranteed by the federal
government.
Forbearance:
An agreement to accept a temporary cessation of loan payments, smaller payments
than were previously scheduled, or an extension of time for making payments.
Forbearance may be given for circumstances not covered by deferment that
adversely affect the borrower's ability to meet loan payment obligations,
such as economic hardship.
Free Application for Federal Student Aid (FAFSA):
An application that a student must complete in order to apply for federal
need-based aid, including both Subsidized and Unsubsidized Federal Stafford
loans.
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G
Gift Aid:
Financial aid in the form of grants and scholarships that does not have to
be repaid. It is available through colleges and universities, federal and
state programs and private sources.
Grace Period:
The period between the times a borrower leaves school or drops below half-time
status and the time he/she is obligated to begin repaying his/her loan(s).
The grace period is usually six or nine months, depending on the type of
loan.
Graduated Repayment:
A repayment option that allows reduced payments for the first two, three
or four years. It can lower initial monthly payments by as much as 40 percent.
Guarantee Fee:
A small percentage of the loan amount that is paid to the guaranty agency
that insures the loan against default. It is usually 1 percent of the loan
amount.
Guaranty Agency:
A state, regional, or national organization that verifies a borrower's eligibility
for federal student loan funding and insures Federal Family Education Loans
for the lender.
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H
Health Professions Student Loan (HPSL):
Federally funded loans, administered by schools, for graduate health professions
students with exceptional financial need.
Holder:
The institution that holds legal title to a loan. Often, lenders sell loans
after disbursement or at repayment. This does not change the borrower's
repayment obligation, but it may make additional benefits available to
the borrower.
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I
Income-Sensitive Repayment:
Monthly payments based on a percentage of the borrower's income.
Interest:
A charge for the use of borrowed money calculated upon a percentage of the
outstanding principal loan amount.
Interest Subsidy:
Interest that the federal government pays for borrowers on certain loans
during in-school, grace and deferment periods.
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L
Lender:
The financial institution or bank that provides funding for loans.
Lender ID Code (LID):
A code used on education loan applications that designates a specific lender
for a loan.
LIBOR:
A financial index on which the interest of Private Loans are
based (3-Month LIBOR/London Interbank Offered Rate). LIBOR is
similar to indexes such as the U.S. Treasury Bill, the Prime
Rate, and Commercial Paper.
Loan:
Money lent to a borrower that must be repaid with interest.
Loan Servicing Center:
The facility that handles all of the administrative tasks associated with
servicing of loans.
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M
Mandatory Forbearance:
A forbearance that is authorized on federal loans for conditions
such as temporary hardship; economic hardship; internship/residency;
to align repayment of multiple loans; Student Loan Repayment
Program (for students eligible for assistance from the Department
of Defense); and national and community service.
MPN (Master Promissory Note):
This is the legally binding contract between the borrower and
the lender of a Federal Stafford Loan. By signing the MPN, the
borrower agrees to all terms and conditions, including the responsibility
to repay all borrowed funds along with any interest and fees
that are charged. Unlike other promissory notes where only one
loan can be borrowed per signed note, the MPN allows a school
to make multiple Federal Stafford Loans to a borrower using the
single note (up to 10 years).
Merit-Based Financial Aid:
Financial aid granted based on merit (i.e., talents or accomplishments) rather
than financial need.
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N
Need Analysis:
A process, based on detailed family financial information, to determine the
amount of financial aid a student qualifies for.
Need-Based Financial Aid:
Financial aid granted based on financial need.
New Borrower:
A borrower who has no outstanding (unpaid) loan balances on the date the
promissory note is signed.
Notification of Loan Transfer:
A document sent to a borrower whose loan has been sold or transferred to
another servicer. It provides the name, address and phone number of the
new servicer and holder and explains where to send monthly payments and
communications.
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O
Origination:
The processing of an application and disbursement of loan proceeds.
Origination Fee:
A fee charged by the federal government (or the originator, in the case of
private loans) that is deducted from loan proceeds before disbursement.
This fee partially offsets administrative costs.
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P
PLUS (See Parent
Loan for Undergraduate Students).
Parent Loan for Undergraduate Students (PLUS):
A low-cost, federally insured loan for parents, stepparents or legal guardians
of dependent undergraduate students.
Pell Grant:
A federal need-based grant.
Perkins Loan:
A federal loan, available to students who demonstrate financial need that
is administered directly by colleges.
Prepayment:
Paying off a loan, in part or in whole, before it is due.
Principal:
The amount borrowed. Interest is charged on this amount and guarantee and
origination fees are deducted from this amount prior to disbursement.
Promissory Note:
A legal document signed by the borrower listing conditions under which the
money is borrowed, and the terms under which the borrower agrees to repay
the loan with interest.
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R
Repayment Schedule:
When it is time for a borrower to begin repayment, this document details
the loan balance, the estimated total amount of interest owed, the amount
of each monthly payment, the total number of payments to be made and the
date the first payment is due.
Repayment Term:
The period during which a borrower is required to make loan payments.
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S
SAP (See Satisfactory
Academic Progress )
SAR (See Student
Aid Report)
Sallie Mae:
The Student Loan Marketing Association is the nation's leading provider of
education loan services.
Satisfactory Academic Progress (SAP):
Students receiving Title IV and State Aid financial aid must maintain satisfactory
academic progress toward completion of their degree. Factors for determining
progress are defined by individual schools.
Secondary Market:
An organization established to purchase education loans from lenders, which
enables lenders to make new loans.
Servicer:
A company like Sallie Mae that provides borrower services and handles the
administrative tasks associated with student loans, such as collecting
payments and sending reminder letters. Lenders will often contract with
these companies because of their expertise in loan servicing.
Stafford Loan (See Subsidized Stafford Loan and
Unsubsidized Stafford Loan)
Standard Repayment:
Equal monthly payments comprised of principal and interest.
Student Aid Report (SAR):
A document that helps the Financial Aid Office determine a student's eligibility
for financial aid. The family and the school receive a copy after completion
of the Free Application for Federal Student Aid (FAFSA).
Subsidized Stafford Loan:
A low-cost, federally insured loan for dependent and independent students
who demonstrate financial need and are enrolled in an approved post-secondary
institution. The federal government pays the interest while the borrower
is in school and during grace and other deferment periods.
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T
Terms:
The specific conditions of a loan, including the requirements
governing receipt and repayment of a loan. It is often used more
specifically to refer to the charges for the loan, such as interest
rate and fees.
Title IV Loan:
Several education loan programs that are collectively referred to as the Federal
Family Education Loan Program (FFELP). These loans are the Federal Stafford
loans (Subsidized and Unsubsidized), Federal PLUS loans and Federal Consolidation
loans.
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U
Unsubsidized Stafford Loan:
A low-cost, federally insured loan for independent students, graduate students
and certain dependent undergraduate students. Unlike the Subsidized Stafford
loan, the borrower is responsible for all interest from the date the loan
is disbursed.
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V
Variable Rate Interest:
An interest rate that changes periodically.
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W
Work-Study Program:
College- or government-sponsored programs that allow students to earn money
while attending college by working part time on campus or in the community.
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