Glossary

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Accrued Interest  The interest that accumulates on the unpaid principal balance of a loan.

Borrower  The person who gets a loan.

Cancellation  When the borrower doesn't have to pay part or all of the loan because the school closed, the borrower's loan eligibility was falsely certified, the school failed to pay a refund to the borrower when it was due, the borrower serves as a teacher or child-care worker; or the borrower declares bankruptcy, dies or becomes disabled. Also see "Discharge" and "Forgiveness."

Capitalization  Accrued interest added to the outstanding principal balance of the loan.

Collapsing  A process the lender may use to combine loans with the same rate and term to possibly create one lower monthly payment.

Consolidation  The combination of education loans into one new loan. The repayment period of the new loan can be up to 30 years depending on the loan amount.

Default  Failing to make loan payments when they are due as stated in the promissory note. A loan is in default after 270 days of non-payment.

Deferment  A period of time during repayment when the borrower, after meeting certain conditions, does not have to make loan payments.

Delinquency  When a borrower does not make a loan payment when it is due.

Disbursement  When the lender releases the borrower's loan funds to the school for delivery to the borrower.

Discharge  When the borrower doesn't have to pay part or all of the loan because the school closed, the borrower's loan eligibility was falsely certified, the school failed to pay a refund to the borrower when it was due, the borrower serves as a teacher or child-care worker; or the borrower declares bankruptcy, dies or becomes disabled. Also see "Cancellation" and "Forgiveness."

Electronic Funds Transfer (EFT)  A paperless way to get loan money electronically transferred from the lender to an account at the school or the school's financial institution.

Electronic Record  A paperless record that is created, generated, sent, communicated, received, or stored electronically.

Electronic Signature  A paperless way to sign a document using an electronic symbol or process attached or associated with the document.

Entrance Counseling  Debt counseling given to a student before the student receives a student loan.

Estimated Financial Assistance (EFA)  Part of the calculation to determine how much financial need a borrower has, which can affect the amount of the loan.

Exit Counseling  Counseling about student loan repayment options that is given to a student when they leave school.

Expected Family Contribution (EFC)  The amount a student and the student's spouse or family are expected to pay toward the student's cost of attendance. The EFC is calculated based on data submitted by the student and the student's parents on the Free Application for Federal Student Financial Aid (FAFSA).

Extended Repayment  A repayment schedule that gives the borrower up to 30 years to repay the loan under certain conditions.

Federal Family Education Loan Program (FFELP)  Loan programs authorized by Title IV, part B of the Higher Education Act of 1965, including the Federal Stafford, PLUS, SLS and Consolidation loan programs.

Federal Offset  When federal income tax refunds and other federal payments are withheld from the borrower and used to pay off a defaulted student loan.

Financial Aid Package  The total amount of financial aid that a school gives a student.

Financial Need  The amount a student needs after calculating the student's cost of attendance less the expected family contribution (EFC) and estimated financial assistance (EFA). Financial need helps determine the amount and type of the student's loan and whether it is subsidized or unsubsidized.

Forbearance  When loan payments are temporarily postponed because of the borrower's financial hardship. During a forbearance interest continues to accrue on the loan.

Forgiveness  When the borrower doesn't have to pay part or all of the loan because the school closed, the borrower's loan eligibility was falsely certified, the school failed to pay a refund to the borrower when it was due, the borrower serves as a teacher or child-care worker; or the borrower declares bankruptcy, dies or becomes disabled. Also see "Cancellation" and "Discharge."

Free Application for Federal Student Aid (FAFSA)  The written or electronic form the student completes to apply for federal Title IV financial assistance.

Grace Period  A period that is usually 6 months after a student graduates or ceases to be enrolled at least half-time and before loan payments begin when no payments are due on the loan.

Graduated Repayment  A repayment schedule that may gradually increase the borrower's monthly payment over time.

Grant  Financial aid awarded to a student based on financial need that does not have to be paid back.

Guarantor  A state or private, nonprofit organization that has an agreement with the Department of Education to run a student loan insurance program.

Income-Sensitive Repayment  A repayment schedule that annually adjusts the borrower's monthly payment based on the borrower's income.

Interest Rate  The percentage of interest that is paid on borrowed money.

Lender  A financial institution that makes student loans.

Master Promissory Note (MPN)  A legally binding loan agreement a borrower signs to promise to repay the loan, with interest, in periodic installments. The note may be signed in writing or electronically. A borrower may receive multiple loans under the same master promissory note. Also see "Promissory Note."

National Student Loan Data System (NSLDS)  A federal data system that gives borrowers information about their federal grants, loans, and other financial aid.

Ombudsman  An officer of the Department of Education that helps a student loan borrower resolve difficulties with the school, lender, servicer, or guarantor.

PIN  A personal identification number that belongs to a borrower. The Department of Education assigns a PIN to a borrower who applies for financial aid.

Principal Balance  The unpaid loan balance on which the lender charges interest.

Promissory Note: A legally binding loan agreement a borrower signs to promise to repay the loan, with interest, in periodic installments. The note may be signed in writing or electronically.

PLUS Loan  A loan made under the Federal Family Education Loan Program to an eligible parent or legal guardian of a dependent, undergraduate student.

Repayment Term  The length of time a loan is to be repaid.

Scholarship  Money that is usually given to a student who has achievements in a variety of areas, not just academics.

Secondary Market: A business that buys student loans from lenders.

Servicer  An business hired by a lender or secondary market to handle processing functions on the loan.

Stafford Loan  A loan made under the Federal Family Education Loan Program to an eligible student. The interest on the loan may be subsidized by the federal government or unsubsidized.

Standard Repayment  A repayment schedule where the borrower pays the same amount for each payment for the entire repayment period.

Student Aid Report (SAR)  A report that summarizes information reported on the FAFSA and shows how much financial aid the student needs.

Subsidized Loan  A loan where the federal government pays the interest during the time the student is in school, during the grace period, and when repayment of the loan is deferred. A student's need determines whether the loan is subsidized.

Title IV  Part of the Higher Education Act of 1965 that provides financial assistance programs to help post-secondary students. It includes grant, loan, and work-study programs.

Unsubsidized Loan  A loan where the borrower is responsible for paying the interest that accrues from the date the loan is made until it is paid in full. It is not based on the student's financial need.

Variable Interest Rate  An interest rate that changes, usually annually.

Work-Study Program  A program that pays eligible students an hourly wage to work on- or off-campus to help them fund the cost of higher education.