Glossary of terms
Borrower | Cancellation
| Capitalization | Consolidation
| Cost of Attendance | Default
Deferment | Direct Loans
| Disbursement | Enrollment
Status | Entrance/Exit Interviews
Forbearance | Garnishment
| Grace Period | Income
Contingent Repayment | Interest
Master Promissory Note | Prepayment
| Principal | Satisfactory
Academic Progress
Subsidized Loan | Unsubsidized
Loan | U.S. Department of Education
Borrower
The person who receives the loan.
Cancellation
Some loan programs provide for cancellation of the loan under certain
circumstances, such as death or permanent disability of the borrower.
Some of the Federal student loan programs have additional cancellation
provisions. For example, if the student becomes a teacher in certain national
shortage areas, they may be eligible for cancellation of all or part of
the balance of their educational loans.
Capitalization
The practice of adding unpaid interest charges to the principal balance
of an educational loan, thereby increasing the size of the loan. Interest
is then charged on the new balance, including both the unpaid principal
and the accrued interest. Capitalizing the interest increases the monthly
payment and the amount of money you will eventually have to repay. If
you can afford to pay the interest as it accrues, you are better off not
capitalizing it.
Consolidation
Consolidation combines several student loans into one bigger loan from
a single lender. The consolidation loan is used to pay off the balances
on the other loans.
Cost of Attendance
The cost of attendance (COA), also known as the cost of education or "budget",
is the total amount it should cost the student to go to school. This amount
includes tuition and fees, room and board, and allowances for books and
supplies, transportation, personal and incidental expenses. Loan fees,
if applicable, may also be included in the COA. Child care and expenses
for disabilities may also be included at the discretion of the financial
aid administrator. Schools establish different standard budget amounts
for students living on-campus and off-campus, married and unmarried students,
in-state and out-of-state students.
Default
A loan is in default when the borrower fails to pay several regular installments
on time (i.e., payments overdue by 180 days) or otherwise fails to meet
the terms and conditions of the loan. If you default on a loan, the university,
the holder of the loan, the state, and the federal government can take
legal action to recover the money, including garnishing your wages and
withholding income tax refunds. Defaulting on a government loan will make
you ineligible for future federal financial aid, unless a satisfactory
repayment schedule is arranged, and can affect your credit rating.
Deferment
Deferment occurs when a borrower is allowed to postpone repaying the loan.
If you have a subsidized loan, the federal government pays the interest
charges during the deferment period. If you have an unsubsidized loan,
you are responsible for the interest that accrues during the deferment
period. You can still postpone paying the interest charges by capitalizing
the interest, which increases the size of the loan. Most federal loan
programs allow students to defer their loans while they are in school
at least half time. If you don't qualify for a deferment, you may be able
to get a Forbearance. You can't get a deferment if your loan is in default.
Direct Loans
The William D. Ford Federal Direct Loan Program (a.k.a. the Direct Loan
Program), is a federal program where the school becomes the lending agency
and manages the funds directly, with the federal government providing
the loan funds. Benefits of the program include a faster turn-around time
and less bureaucracy than the old "bank loan" program. For more
information about Direct Loans, contact the Direct
Loan Servicing Center or call at 1-800-848-0979.
Disbursement
Disbursement is the release of loan funds to the school for delivery to
the borrower. The payment will be made co-payable to the student and the
school. Loan funds are first credited to the student's account for payment
of tuition, fees, room and board, and other school charges. Any excess
funds are then paid to the student in cash or by check.
Enrollment Status
An indication of whether you are a full-time or part-time student. Generally
you must be enrolled at least half-time (and in some cases full-time)
to qualify for financial aid.
Entrance/Exit Interviews
Students with educational loans are required to complete an entrance loan
counseling session before they receive their first loan disbursement and
an exit loan counseling session before they graduate or otherwise leave
school. During the counseling sessions, called entrance and exit interviews,
borrowers review the repayment terms of the loan and the repayment schedule
options. You are fulfilling this requirement today.
Forbearance
During forbearance the lender allows the borrower to temporarily postpone
repaying the principal, but the interest charges continue to accrue, even
on subsidized loans. The borrower must continue paying the interest charges
during the forbearance period. Forbearances are granted at the lender's
discretion, usually in cases of extreme financial hardship or other unusual
circumstances when the borrower does not qualify for a deferment. You
can't receive forbearance if your loan is in default.
Garnishment
Garnishment is the practice of withholding a portion of a defaulted borrower's
wages to repay his or her loan, without their consent.
Grace Period
The grace period is a short time period after graduation during which
the borrower is not required to begin repaying his or her student loans.
The grace period may also kick in if the borrower leaves school for a
reason other than graduation or drops below half-time enrollment. The
grace period is for six months.
Income Contingent Repayment
Under an income contingent repayment schedule, the size of the monthly
payments depends on the income earned by the borrower. As the borrower's
income increases, so do the payments.
Interest
Interest is an amount charged to the borrower for the privilege of using
the lender's money. Interest is usually calculated as a percentage of
the principal balance of the loan. The percentage rate may be fixed for
the life of the loan, or it may be variable, depending on the terms of
the loan. As of October 1, 1992, all new federal loans use variable interest
rates that are pegged to the cost of US Treasury Bills.
Master Promissory Note
The Master Promissory Note (MPN) is a promissory note that can be used
to make one or more loans for one or more academic years. The MPN is used
for all Direct Subsidized and Direct Unsubsidized Loans. It is not used
for PLUS (parent) loans at this time.
Prepayment
Paying off all or part of a loan before it is due.
Principal
The principal is the amount of money borrowed or remaining unpaid on a
loan. Interest is charged as a percentage of the principal. Insurance
and origination fees will be deducted from this amount before disbursement.
Satisfactory Academic
Progress
A student must be making Satisfactory Academic Progress in order to continue
receiving federal aid. If a student fails to maintain an academic standing
consistent with the school's policy, they are unlikely to meet the school's
graduation requirements.
Subsidized Loan
With a subsidized loan, the government pays the interest on the loan while
the student is in school, during the six-month grace period, and during
any deferment periods. Subsidized loans are awarded based on financial
need and may not be used to finance the family contribution.
Unsubsidized Loan
An unsubsidized loan is a loan for which the government does not pay the
interest. The borrower is responsible for the interest on an unsubsidized
loan from the date the loan is disbursed, even while the student is still
in school. Students may avoid paying the interest while they are in school
by capitalizing the interest, which increases the loan amount. Unsubsidized
loans are not based on financial need and may be used to finance the family
contribution.
U.S. Department of Education
The U.S. Department of Education administers
the Federal Direct Loan Program.
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