Deciphering the Details: Student Loan Terms You Should Know
BIG Ideas:
- Whether you’re just starting your college journey or have graduated, it’s important to understand some common student loan terms.
- Private loans are based on credit, which means students may need to apply with a co-signer.
- As a Texas non-profit, Brazos can help you save on student loans.
You’ve got plans. Maybe you’re gearing up for college or nearing graduation and that dreaded time to start paying back your student loans.
Or perhaps you’ve been out of school for a while and are considering refinancing your student loans to save money. Not a bad idea.
Whatever your goal, you’ll have to make some important choices.
But before that can happen, you need to understand some key (and sometimes confusing) student loan terms. Don’t worry; we’ve prepared the cheat sheet below to help you crack the code:
- Amortization. This term refers to the amount of periodic payments needed to pay off a loan over the agreed upon loan term. With student loans, amortization schedules show the amount of each payment applied toward the principal versus interest, illustrating how balances decrease.
- Capitalization. This is when accrued and unpaid interest is added to the principal balance under certain conditions. It can increase your monthly payment and the total loan cost over time, particularly if you have a loan deferment (see definition below) or your loan goes into forbearance (see definition below).
- Cosigner. A person who agrees to be responsible for repaying the student loan if you don’t make your monthly payments.
- Default. If you don’t pay your loan, it will go into default, which results in serious financial consequences like damaged credit and wage garnishment. You can avoid default by making your monthly payments on time, every time. If you have trouble making payments, contact your loan servicer (see definition below) immediately.
- Deferment. Time period in which you can pause payments temporarily, usually tied to a qualifying event, like being enrolled in school.
- Direct PLUS loan. This is a federal loan offered to graduate or professional degree students or parents of dependent undergraduate students to help manage the cost of college.
- Federal student loans. Issued by the U.S. Department of Education, federal loans offer flexible repayment plans and borrower protections (such as deferment, forbearance, and forgiveness options) that private loans generally do not. They are based on financial need and require completing the FAFSA (see below).
- FAFSA. An acronym for the Free Application for Federal Student Aid, the FAFSA is a form that students and parents (of dependent students) must complete to qualify for financial aid.
- Forbearance. Time period in which you can pause payments temporarily, typically not tied to a qualifying event, but for specific situations, such as financial hardship.
- Forgiveness. In some circumstances, the student may be able to have their student loans forgiven, which means they are no longer responsible for the debt.
- Grace period. After the student leaves school, they have a grace period (usually six months) before the first payment is due.
- Grant. Also known as “free money,” a grant is financial aid you don’t have to pay back.
- Income-driven repayment plan. This is a federal loan benefit that adjusts the amount of your monthly payments based on your family size or income.
- Interest rate. The fee the lender will charge you for borrowing money, expressed as a percentage. An interest rate can be fixed (it doesn’t change) or variable (it can rise or fall depending on market conditions).
- Loan consolidation. If you have multiple federal student loans, you could consolidate them into one loan with a weighted interest rate.
- Loan refinance. If you have multiple student loans, federal and/or private, you can apply to refinance them into a private loan. Keep in mind, though, that refinancing federal loans into a private loan will result in the loss of some federal loan benefits, such as income-driven repayment and loan forgiveness.
- Loan servicer. This is the company that you make your student loan payments to and where you can go to get assistance with your loan.
- Principal. The principal is the original loan amount borrowed for school (not counting interest).
- Private student loans. These are loans offered by banks, credit unions, and non-profits like Brazos. Private loans are credit-based, unlike federal loans, so students may need a co-signer to qualify.
- Repayment option. This refers to the way in which you choose to repay your loan, typically selected when you apply for a private student loan. This includes options such as beginning to make payments while you are still in school (immediate repayment), paying only interest while in school (interest only) and deferring payment of principal and interest while in school (in school deferment).
- Repayment period/term. The amount of time to pay back your loan.
- Repayment plans. These plans, which may include standard, graduated, and income-driven repayment, allow you to structure payments based on your income and circumstances. The repayment plan you choose, however, can impact the total interest you pay and the repayment period (see definition above).
- Subsidized loans. With this type of federal loan, the government pays interest during certain periods, like when the student is in school.
- Unmet need. This is the difference between the cost of attending college and the amount of financial aid you receive.
- Unsubsidized Loans. Unlike subsidized loans, these are a type of federal loan that accrue interest immediately, even while the student is in school, which can increase the interest you have to pay.
- Work study. This is a needs-based federal program that offers part-time jobs for students, allowing them to earn money in school to pay for the cost of education.
Brazos is here to help make college affordable
For more than 40 years, Brazos Higher Education has been helping make education more affordable for students. As a Texas non-profit, we offer great rates and no fees on private student loans to help fill the gap where federal loans leave off. Contact us to learn more.
