The Language of Loans

A

Alternative Loan

Also called a private or private education loan, this nonfederal loan is issued through a bank or credit union. An alternative student loan may have a variable interest rate and require a credit check and may not provide the benefits of federal student loans.

Award Letter

An award letter is a way to notify applicants of the financial aid being offered, including the type (grants, scholarships, loans, and other programs) and amount of aid. It also provides specific program information and outlines student responsibilities and the conditions of the award.

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B

Business Office

Also called the bursar's, student account, student aid, or comptroller's office, this office is usually responsible for the billing and collection of the school's charges.

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C

Capitalization

The addition of unpaid accrued interest to the principal balance of a loan increases the outstanding principal amount due on the loan. Since interest accrues on the capitalized interest, it adds an expense to the loan.

Consolidation

Through consolidation, you can combine numerous student loans into a single loan with a new repayment schedule and interest rate.

Cost of Attendance (COA)

The COA is the total cost of college, usually expressed as the amount for 1 academic year. Federal law determines what costs comprise the COA, such as tuition and fees, on-campus room and board (or a reasonable allowance for off-campus students), and allowances for books, supplies, transportation, loan fees, and, if applicable, dependent care. The COA also includes costs related to a disability and other personal expenses, such as an allowance for the documented rental or purchase of a personal computer.

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D

Default

Default is the failure to repay a loan according to the terms the borrower agreed to when signing the promissory note for the loan. Default occurs after a predetermined number of days of nonpayment that depends on the type of loan.

Deferment

This authorized temporary suspension of repayment is granted only under certain circumstances. For subsidized federal loans, the government pays the interest during a deferment. For all other loans, the borrower is responsible for paying the interest that accrues during a deferment.

Delinquency

Delinquency is the failure to make scheduled monthly loan payments when they are due.

Disbursement

Disbursement is the transfer of loan funds from a lender or U.S. Department of Education to the school.

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E

Expected Family Contribution (EFC)

Commonly referred to as the family's "ability to pay," the EFC is one component used to determine a student's need for federal student aid and/or school-based financial aid. The EFC is a dollar amount calculated using a formula established by the federal government. It is based on the information you provide on the FAFSA® (Free Application for Federal Student Aid).

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F

FAFSA (Free Application for Federal Student Aid)

FAFSA is the form students must complete to apply for federal financial aid, for most state grants and scholarships, and for many school-based student financial aid programs.

FDLP (Federal Direct Loan Program)

Under FDLP, federal student loans are issued through the U.S. Department of Education or schools or contractors who work for the U.S. Department of Education. FDLP eliminates the middleman (the third-party lender) that was part of FFELP (Federal Family Education Loan Program). As of July 1, 2010, FDLP is the sole source of all federal educational loans for students and parents.

FFELP (Federal Family Education Loan Program)

FFELP was created as a way to provide low-interest, federally guaranteed educational loans to students and their parents. Under FFELP, the government subsidized third-party lenders who offered low-interest federal loans to students. As of July 1, 2010, federal student loans will no longer be disbursed through FFELP.

Financial Aid Office

This office is responsible for awarding aid and providing counseling.

Financial Need

Financial need is the difference between the school's cost of attendance and the student's expected family contribution.

Fixed Interest Rate

A fixed interest rate does not change during a defined period of time.

Forbearance

This authorized temporary reduction or suspension of repayment is granted only under certain circumstances. For both subsidized and unsubsidized federal loans, the borrower is responsible for paying the interest that accrues during forbearance.

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G

Grace Period

Grace is the period before the first payment on a loan is due. The grace period begins the day after the student graduates, leaves school, or drops below half-time status and ends the day before repayment begins. Not all loans include a grace period. For those that do, grace usually is 6 months, but it may be more or less than that depending on the type of loan.

Graduate PLUS Loan

This type of federal loan is available to graduate or professional students to pay for their education. Borrowers may need to be creditworthy in order to receive this loan. There is no grace period associated with this loan. Graduate PLUS loan borrowers used to be able to select their own lender, but as of July 1, 2010, graduate PLUS loans are disbursed only through the U.S. Department of Education.

Grants

These financial aid awards are generally awarded based on financial need and do not have to be paid back.

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I

Interest

Interest is the charge for using a lender's money. The interest that accumulates on a loan becomes payable on the loan's unpaid principal balance.

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M

MPN (Master Promissory Note)

See the definition for Promissory Note.

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P

Parent PLUS Loan

This type of federal loan is available to parents of dependent undergraduate students. Parent PLUS loan borrowers used to be able to select their own lender, but as of July 1, 2010, parent PLUS loans are disbursed only through the U.S. Department of Education.

Private Loan

See the definition for Alternative Loan.

Promissory Note

This legal and binding contract contains a loan's terms and conditions, including the borrower's responsibilities for repaying the loan.

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R

Repayment Disclosure

Your loan servicer will send you a Repayment Disclosure during your grace period to notify you when it's time to start repaying your loan. The Repayment Disclosure will detail the amount of your monthly payment, the projected amount of interest, the principal balance, and more.

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S

Scholarship

This type of financial award usually does not have to be paid back. It is given to students who demonstrate high achievement in areas such as academics, athletics, music, art, or other disciplines.

Stafford Loan

This is a common type of federal loan for students. Although Stafford borrowers used to be able to select their own lender, as of July 1, 2010, all Stafford loans are disbursed only through the U.S. Department of Education.

Subsidized Loan

For this type of federal loan, the government pays the interest during in-school, grace, and authorized deferment periods.

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U

Unsubsidized Loan

For this type of federal loan, the borrower is responsible for paying the interest that accrues from the date of disbursement until the date he or she pays the loan in full.

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