Student Loan Glossary

To fully understand your student lending options, it's helpful to review to language used within most loan terms and agreements. After all, how can you agree to anything without knowing what the terms you're agreeing to actually mean? It certainly helps to understand some basic loan terms, many of which you'll find them scattered throughout loan materials and in conversations with financial aid advisors. Use this glossary to help understand any terms on potential loans. Remember, never sign on the dotted line without knowing exactly what you're agreeing to! Accrued interest: The interest that accumulates on the unpaid balance of a loan. Annual percentage rate (APR): The interest associated with a loan, which can change or remain the same during the year and term of the loan. Capitalization: When the accrued interest is added to the principal balance, thus increasing your balance owed and basically charging you interest on the interest. Co-signer: A person who signs a credit agreement besides the borrower and is legally obligated to take responsibility for loan repayment if the borrower does not make payments. Cost of education: The total annual cost of attending a given school, which includes tuition, fees, books, housing, meals, transportation and personal expenses. Default: Failure to repay your loan according to the terms of the promissory note. This can lead to legal action by the school, the lender, the state or the federal government to recover the money. Deferment: Temporary postponement of student loan repayment, limited to borrowers who fall into certain government qualifications. Delinquent: When at least one loan payment is late or missed. Serious delinquency results in default. Dependent student: A student whose financial aid eligibility is based on his or her parents' income and assets. Disbursement: The release of funds by a lender. Disclosure statement: A statement of the total cost of your loan, including interest costs and loan fees. Entrance/exit interview: Counseling sessions that are required for federal student loan borrowers. The entrance interview is required before receiving the first loan disbursement; the exit interview takes place before you leave school. Expected family contribution (EFC): The amount of money reported on a Student Aid Report that a student's family is expected to pay toward the student's education. Financial aid officer: A member of your school's financial aid office who helps administer financial aid programs. Fixed interest rate: A rate that remains the same from the day of the loan to the last repayment. Forbearance: The permission to postpone, reduce or extend loan payments because of serious hardship. Interest continues to accrue during forbearance, though, so the amount owed ends up increasing. Free Application for Federal Student Aid (FAFSA): A comprehensive form that all students applying for financial aid must file. Grace period: The time between leaving school and when you have to begin making payments on your loans. Guarantee fee: The fee of up to 1 percent charged to insure or guarantee a student loan. Independent student: A student who is one of the following: 24 years old by Dec. 31 of the award year; an orphan or ward of the court; a veteran; married or supports legal dependents other than a spouse; a graduate student, or someone who is declared independent by a financial aid administrator. Interest: The fee - a percentage of your balance - that is charged by the lender when money is borrowed. Origination fee: A charge from the Department of Education that is deducted from your loan to help cover the costs of making the loan. Principal: The full amount borrowed. During repayment, it refers to the portion of the original amount still owed. Promissory note: A legally binding contract between borrower and lender that states the terms and conditions under which the borrower promises to repay the loan. Repayment schedule: A statement listing the total amount you owe, the amount of your monthly payment and the date your first payment is due. Subsidized loan: A loan for which the federal government pays the interest while the student is in school, and during grace and deferment periods. Variable interest rate: A rate that can change periodically, usually annually. Unsubsidized loan: A loan for which the student is responsible for paying all interest at all times. Interest accrues on the loan from the date of first disbursement until the loan is paid in full. To avoid capitalization of the interest, the interest can be paid before the loan repayment is scheduled to begin.