Easy to understand explanations of all student lender terminology!

1. Student Loan Terminology
Explained
Your Glossary For All Important
Lending Terms!

2. Accrued Interest
• Loans accrue interest based upon the unpaid
balance of the loan principal and the current
repayment status of the loan.

3. Alternative Student Loan
• An “alternative loan” is one that is offered by
a private lender. These loans are credit based,
can have variable rates and often require a
cosigner. Alternative loans are also known as a
“private student loans.”

4. APR
• APR Stands for “Annual Percentage Rate.” This
not only takes interest into account, but the
points, broker fees and other charges that
might be associated with a loan.

5. Capitalized Interest
• With capitalization, unpaid accrued interest is
added to the principal amount to be repaid
later. You are then incurring interest on this
accrued interest as well as interest on the
original loan principal.

6. Compound Interest
• Interest that is calculated not only on the
initial principal but also the accumulated
interest of prior periods. Interest may be
compounded annually, quarterly, monthly, or
daily, depending on the terms of the note.

7. Consolidation Loan
• A loan that combines your existing loans into
one new loan, and one payment. Usually, a
consolidation loan has a lower monthly
payment and a longer term than your
combined original loans.

8. Co- Signer
• Someone who signs a promissory note along
with the borrower, and is legally obligated to
assume responsibility for loan repayment if
the borrower does not make his or her
payment.

9. Default
• Failure to repay your loan(s). In FFELP, a loan
made before 10/1/98 is considered in default
at 180 days past due. Any loan made on or
after 10/1/98 is considered in default at 270
days past due.

10. Deferment
• A temporary postponement of student loan
principal and/or interest payments that may
be granted if the borrower satisfies certain
criteria.

11. Delinquent
• The status of your loan changes to
“delinquent” when at least one payment is
missed.

12. Disbursement
• When a lender sends a check or electronically
sends funds for your loan to the school.
• Multiple Disbursements are provided to
coincide with each term of school and fees
(where applicable) are usually deducted
proportionately.

13. Expected Family Contribution
• The total money that a family is expected to pay for a
student’s college education based on a detailed
assessment of the family’s financial situation.

14. Fees
• Some lenders charge a fee to originate, insure
or guarantee a student loan. This includes the
Federal Loans. Fees are usually
proportionately charged to each
disbursement.
• Origination Fee- charge deducted from loan
proceeds for all federal loans- some private
loans have an origination fee as well.

15. Forbearance
• Written permission to postpone, reduce, or
extend payments, usually for three to six
months, because of serious economic
hardship. Interest continues to accrue and
remains the responsibility of the borrower.
Therefore, the borrower will owe a higher
total amount on the loan when forbearance
ends.

16. Grace Period
• Applicable to many student loans, is the six-
month period after you graduate, leave
school, or drop below half-time status. Once
the period is over, you must start making
monthly loan payments or already have
obtained a deferment or forbearance.

17. Interest
• The amount a lender charges a borrower for
the use of money borrowed, calculated as a
percentage of the principal balance.
• Some rates are fixed for the term of the loan.
Others are variable tied to an index with a
margin

18. Independent Student
• You are automatically considered a dependent
unless you are: 24 years or older (as of 12/31
of the award year), a graduate or a
professional student, married, have legal
dependents other than a spouse, an orphan or
ward of the court, or are a veteran of the U.S.
Armed Forces.

19. Index
• Index is the rate that determines the average
interest rate at which banks lend to each other
at. This interest rate is variable and subject to
change by quarter.

20. Margin
• Margin is the flat rate which a lender will add
to the lending index in order to determine the
interest rate a consumer will pay. Loan
margins are tiered, and determined based on
credit score.

21. Parent Plus Loan
• A government-backed loan designed for
parents of financially dependent
undergraduate students.

22. Principal
• The full amount you have borrowed for your
loan. When you are repaying the loan, the
principal is the portion of the original amount
you still owe, plus capitalized interest, if any.

23. Promissory Note
• A legally binding contract between a borrower
and lender that contains the terms and
conditions under which the borrower
promises to repay the loan.

24. Repayment Schedule
• A document listing the total amount you owe,
the amount of your monthly payment, and the
date your first payment is due.

25. Secondary Market
• A state agency or private company that
purchases student loans from individual
lenders. It holds and collects loans until they
are paid. The company may employ an outside
servicer.

26. Separation Date
• The official date you drop below half-time
status or withdraw from school. If you are
entitled to a grace period, it begins on that
date.

27. Servicers
• Companies that contract with lenders and
secondary markets to provide all customer
service activities of loan servicing and loan
collection.

28. Subsidized Student Loan
• A need-based, government-backed student
loan in which the government will pay the
interest while the student is in school at least
half-time.

29. Unsubsidized Student Loan
• Loan is not based on need, allowing students
at all income and asset levels to be eligible for
a lower-cost student loan. The student is
responsible for paying interest while in school.
However, interest will accrue and capitalize.