Student Loans 101

Glossary of Student Loan Terms

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Glossary of Key Student Loan Terms


  • Award Amount

    Amount of aid a school expects to pay a student based on the student’s current grant and loan eligibility, enrollment, Expected Family Contribution (EFC), and the school's cost of attendance.

  • Award Letter

    An offer from a college or career school that states the type and amount of financial aid the school is willing to provide if you accept admission and register to take classes at that school.

  • Capitalization

    The addition of unpaid interest to the principal balance of a loan. When the interest is not paid as it accrues during periods of in-school status, the grace period, deferment, or forbearance, your lender may capitalize the interest. This increases the outstanding principal amount due on the loan and may cause your monthly payment amount to increase. Interest is then charged on that higher principal balance, increasing the overall cost of the loan.

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  • Co-Borrower/Co-Signer

    A co-signer is a person who is the guarantor of the loan, especially a promissory note. Someone who co-signs a promissory note agrees to repay the loan if the borrower does not repay it.

  • Collection Agency

    An entity that recovers unpaid debt from borrowers who have defaulted on their loans.

  • Collection Costs

    Expenses charged on defaulted federal student loans that are added to the outstanding principal balance of the loan. These expenses can be up to 18.5 percent of the principal and interest for defaulted Direct Loans or FFEL Program loans and may exceed 18.5 percent for defaulted Federal Perkins Loans and Health and Human Service (HHS) loans.

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  • Consolidation

    The process of combining one or more loans into a single new loan.

  • Cost of Attendance (COA)

    The total amount it will cost you to go to school—usually stated as a yearly figure. COA includes tuition and fees; room and board (or a housing and food allowance); and allowances for books, supplies, transportation, loan fees, and dependent care. It also includes miscellaneous and personal expenses, including an allowance for the rental or purchase of a personal computer; costs related to a disability; and reasonable costs for eligible study-abroad programs. For students attending less than half-time, the COA includes tuition and fees and an allowance for books, supplies, transportation, and dependent care expenses, and can also include room and board for up to three semesters or the equivalent at the institution. But no more than two of those semesters, or the equivalent, may be consecutive. Contact the financial aid administrator at the school you’re planning to attend if you have any unusual expenses that might affect your COA.

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  • Credit Reporting Agency

    An organization that tracks and reports your credit, including your history of paying bills and calculates your ability to repay future loans. For example, if you default on a student loan, it is reported to a credit bureau, and other lenders may be less likely to extend credit to you in the future.

  • Default

    Failure to repay a loan according to the terms agreed to in the promissory note. For most federal student loans, you will default if you have not made a payment in more than 270 days. You may experience serious legal consequences if you default.

  • Deferment

    A postponement of payment on a loan that is allowed under certain conditions and during which interest does not accrue on Direct Subsidized Loans, Subsidized Federal Stafford Loans, and Federal Perkins Loans. All other federal student loans that are deferred will continue to accrue interest. Any unpaid interest that accrued during the deferment period may be added to the principal balance (capitalized) of the loan(s).

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  • Delinquent

    A loan is delinquent when loan payments are not received by the due dates. A loan remains delinquent until the borrower makes up the missed payment(s) through payment, deferment, or forbearance. If the borrower is unable to make payments, he or she should contact his or her loan servicer to discuss options to keep the loan in good standing.

  • Dependent Student

    A student who does not meet any of the criteria for an independent student. An independent student is one of the following: at least 24 years old, married, a graduate or professional student, a veteran, a member of the armed forces, an orphan, a ward of the court, someone with legal dependents other than a spouse, an emancipated minor or someone who is homeless or at risk of becoming homeless.

  • Direct Consolidation Loan

    A federal loan made by the U.S. Department of Education that allows you to combine one or more federal student loans into one new loan. As a result of consolidation, you will have to make only one payment each month on your federal loans, and the amount of time you have to repay your loan will be extended.

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  • Direct Loan

    A federal student loan, made through the William D. Ford Federal Direct Loan Program, for which 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.

  • Direct PLUS Loan

    A loan made by the U.S. Department of Education to graduate or professional students and parents of dependent undergraduate students for which the borrower is fully responsible for paying the interest regardless of the loan status.

  • Enrollment Status

    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.

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  • FAFSA

    Is the acronym for Free Application for Federal Student Aid. It is the application that must be completed for all federal student aid. The FREE application used to apply for federal student aid, such as federal grants, loans, and work-study.

  • Expected Family Contribution (EFC)

    This is the number that’s used to determine your eligibility for federal student financial aid. This number results from the financial information you provide in your FAFSA®, the application for federal student aid. Your EFC is reported to you on your Student Aid Report (SAR).

  • FAFSA4caster

    An online tool that provides an early estimate of your federal student aid eligibility to help you financially plan for college.

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  • Federal Family Education Loan (FFEL) Program

    Under this program, private lenders provided loans to students that were guaranteed by the federal government. These loans included Subsidized Federal Stafford Loans, Unsubsidized Federal Stafford Loans, FFEL PLUS Loans, and FFEL Consolidation Loans. Federal student loans under the FFEL Program are no longer made by private lenders. Instead, all new federal student loans come directly from the U.S. Department of Education under the Direct Loan Program.

  • Federal Pell Grant

    A federal grant for undergraduate students with financial need.

  • Federal Perkins Loan

    A federal student loan, made by the recipient's school, for undergraduate and graduate students who demonstrate financial need.

  • Federal Student Aid

    Financial aid from the federal government to help you pay for education expenses at an eligible college or career school. Grants, loans and work-study are types of federal student aid. You must complete the FAFSA to apply for this aid.

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  • Federal Student Aid Programs

    The programs authorized under Title IV of the Higher Education Act of 1965 that provide grants, loans and work-study funds from the federal government to eligible students enrolled in college or career school.

  • Federal Student Loan

    A loan funded by the federal government to help pay for your education. A federal student loan is borrowed money you must repay with interest.

  • Financial Need

    The difference between the cost of attendance (COA) at a school and your Expected Family Contribution (EFC). While COA varies from school to school, your EFC does not change based on the school you attend.

  • Forbearance

    A period during which your monthly loan payments are temporarily suspended or reduced. Your lender may grant you a forbearance if you are willing but unable to make loan payments due to certain types of financial hardships. During forbearance, principal payments are postponed but interest continues to accrue. Unpaid interest that accrues during the forbearance will be added to the principal balance (capitalized) of your loan(s), increasing the total amount you owe.

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  • Grace Period

    A period of time after borrowers graduate, leave school, or drop below half-time enrollment where they are not required to make payments on certain federal student loans. Some federal student loans will accrue interest during the grace period, and if the interest is unpaid, it will be added to the principal balance of the loan when the repayment period begins.

  • Grant

    Financial aid, often based on financial need, that does not need to be repaid (unless, for example, you withdraw from school and owe a refund).

  • Income Tax Refund Offsets

    A debt collection tool that allows the government to seize income tax refunds from individuals who owe the federal government to help repay the outstanding debt. This tool may be used for federal student loans borrowers who are in default.

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  • Independent Student

    An independent student is one of the following: at least 24 years old, married, a graduate or professional student, a veteran, a member of the armed forces, an orphan, a ward of the court, or someone with legal dependents other than a spouse, an emancipated minor or someone who is homeless or at risk of becoming homeless. Get additional information to determine your dependency status.

  • Interest

    A loan expense charged for the use of borrowed money. Interest is paid by a borrower to a lender. The expense is calculated as a percentage of the unpaid principal amount of the loan.

  • Interest Rate

    The percentage at which interest is calculated on your loan(s).

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  • Lender

    The organization that made the loan initially; the lender could be the borrower's school; a bank, credit union, or other lending institution; or the U.S. Department of Education.

  • Loan Forgiveness

    The cancellation of all or some portion of your remaining federal student loan balance. If your loan is forgiven, you are no longer responsible for repaying that remaining portion of the loan.

  • Loan Holder

    The entity that holds the loan promissory note and has the right to collect from the borrower.

  • Loan Rehabilitation

    The process of bringing a loan out of default and removing the default notation from a borrower's credit report. To rehabilitate a Direct or a FFEL Loan, the borrower must make at least nine full payments of an agreed amount within 20 days of their monthly due dates over a 10-month period. To rehabilitate a Perkins Loan, a borrower must make nine on-time, consecutive monthly payments of an agreed-upon amount. Rehabilitation terms and conditions vary for other loan types and can be obtained directly from loan holders.

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  • Loan Servicer

    A company that collects payments, responds to customer service inquiries, and performs other administrative tasks associated with maintaining a federal student loan on behalf of a lender.

  • Master Promissory Note

    A binding legal document that you must sign when you get a federal student loan. The MPN can be used to make one or more loans for one or more academic years (up to 10 years). It lists the terms and conditions under which you agree to repay the loan and explains your rights and responsibilities as a borrower. It’s important to read and save your MPN because you’ll need to refer to it later when you begin repaying your loan or at other times when you need information about provisions of the loan, such as deferments or forbearances.

  • Net Price Calculator

    A tool that allows current and prospective students, families, and other consumers to estimate the net price of attending a particular college or career school.

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  • Outstanding Interest

    Interest is a loan expense charged for the use of borrowed money. Interest is paid by a borrower to a lender. (Generally, a loan servicer collects payment for the lender.) The expense is calculated as a percentage of the unpaid principal amount of the loan. Outstanding interest is the dollar value of the accrued interest balance on a loan.

  • Outstanding Principal

    The remaining portion of the original loan amount, plus any interest that has been capitalized, that is still owed. Interest accrues on the outstanding principal balance.

  • Partial Financial Hardship

    An eligibility requirement for the Income-Based Repayment (IBR) and Pay As You Earn plans.

    For IBR, a circumstance in which the annual amount due on your eligible loans, as calculated under a 10-year Standard Repayment Plan, exceeds 15 percent of the difference between your adjusted gross income (AGI) and 150 percent of the poverty line for your family size in the state where you live.

    For Pay As You Earn, a circumstance in which the annual amount due on your eligible loans, as calculated under a 10-year Standard Repayment Plan, exceeds 10 percent of the difference between your adjusted gross income (AGI) and 150 percent of the poverty line for your family size in the state where you live.

    For both plans, the amount that would be due under a 10-year Standard Repayment Plan is calculated based on the greater of the amount owed on your eligible loans when you originally entered repayment, or the amount owed at the time you selected the IBR or Pay As You Earn plan.

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  • PLUS Loan

    A loan available to graduate students and parents of dependent undergraduate students for which the borrower is fully responsible for paying the interest regardless of the loan status.

  • Principal

    The total sum of money borrowed plus any interest that has been capitalized.

  • Private Loan

    A nonfederal loan made by a lender such as a bank, credit union, state agency, or school.

  • Promissory Note

    The binding legal document that you must sign when you get a federal or private student loan. It lists the terms and conditions under which you agree to repay the loan and explains your rights and responsibilities as a borrower. It’s important to read and save this document because you’ll need to refer to it later when you begin repaying your loan or at other times when you need information about provisions of the loan, such as repayment terms or deferments or forbearances.

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  • Proprietary School

    A private for-profit school that provides education and training.

  • Qualifying Public Services

    For the purposes of the Public Service Loan Forgiveness Program, a not-for-profit organization that is not tax-exempt under Section 501(c)(3) of the Internal Revenue Code is considered a qualifying employer if it provides at least one of the following public services:
    •Emergency management
    •Military service
    •Public safety
    •Law enforcement
    •Public interest law services
    •Early childhood education (including licensed or regulated child care, Head Start, and state funded pre-kindergarten)
    •Public service for individuals with disabilities
    •Public service for the elderly
    •Public health
    •Public education
    •Public library services
    •Other school-based services

    Law enforcement includes organizations that are publicly funded and whose principal purposes include crime prevention, control or reduction of crime, or the enforcement of criminal law.

    Public health includes organizations that employ nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health support occupations, as such terms are defined by the Bureau of Labor Statistics.

    Public interest law refers to legal services provided by an organization that is funded in whole or in part by a local, state, federal, or tribal government.

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  • Scholarship

    Money awarded to students based on academic or other achievements to help pay for education expenses. Scholarships generally do not have to be repaid.

  • State Aid

    Financial aid from a student's state of legal residence.

  • Student Aid Report (SAR)

    A summary of the information you submitted on your Free Application for Federal Student Aid (FAFSA). You receive this report (often called the SAR) via e-mail a few days after your FAFSA has been processed or by mail within 7-10 days if you did not provide an e-mail address. If there are no corrections or additional information you must provide, the SAR will contain your EFC, which is the number that's used to determine your eligibility for federal student aid.

  • Subsidized Loan

    A loan based on financial need for which the federal government pays the interest that accrues while the borrower is in an in-school, grace, or deferment status. For Direct Subsidized Loans first disbursed between July 1, 2012, and July 1, 2014, the borrower will be responsible for paying any interest that accrues during the grace period. If the interest is not paid during the grace period, the interest will be added to the loan’s principal balance.

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  • Tax Offset

    A debt collection tool that allows the government to seize income tax refunds from individuals who owe the federal government to help repay the outstanding debt. This tool may be used for federal student loans borrowers who are in default.

  • Teacher Education Assistance for College and Higher Education (TEACH) Grant

    A federal grant that provides up to $4,000 per year to students who agree to teach for four years at an elementary school, secondary school, or educational service agency that serves students from low-income families and to meet other requirements. If the service obligation is not met, the grant is converted to a Direct Unsubsidized Loan.

  • Unsubsidized Loan

    A loan for which the borrower is fully responsible for paying the interest regardless of the loan status. Interest on unsubsidized loans accrues from the date of disbursement and continues throughout the life of the loan.

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  • Verification

    The process your school uses to confirm that the data reported on your FAFSA is accurate. Your school has the authority to contact you for documentation that supports income and other information that you reported.

  • William D. Ford Federal Direct Loan (Direct Loan) Program

    The federal program that provides loans to eligible student and parent borrowers under Title IV of the Higher Education Act. Funds are provided by the federal government to eligible borrowers through participating schools.

  • Work-Study

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

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Many of the terms and definitions on this page were taken directly from the U.S. Department of Education Federal Student Aid Glossary. We believe consistent terms and definitions assist students and parents.

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