Accrued Interest
The interest that accumulates on the unpaid portion of the original loan amount, known as the principal balance.

Alternative Loan
A private supplemental loan for students available from a national network of lenders.

Amortization
The process of repaying loans over a period of time through installments consisting of principal and interest.

Annual Percentage Rate (APR)
The rate at which interest accumulates on a loan over the course of a one-year period.

Award Letter
A document from your college/university financial aid office detailing the financial aid awarded to the student.

Balloon Payment
A payment larger than a typical monthly payment used to pay off the remaining principal balance of a loan.

Borrower
The person who obtains a loan.

Bursar
The person/office at a school that is in charge of collecting education costs.

Collection Agency
A company hired by a lender to collect and recover funds from a defaulted loan.

Consolidation
The act of refinancing existing student loans into a single loan, that typically has a fixed interest rate, a lower monthly payment and a longer repayment period.

Cosigner (a.k.a Coborrower)
A secondary person who signs the promissory note of a loan and assumes responsibility of paying for a loan should the borrower fail to pay.

Cost of Attendance (COA)
The total sum of attending a school. This cost includes tuition, fees, room & board, books and supplies, food, incidentals, travel expenses and personal expenses. The Cost of Attendance is different at each school.

Credit Bureau
An agency that collects and distributes credit history and information such as number of accounts, balances, employment stability and payment history for individuals.

Credit Score (a.k.a. Credit Rating)
A numerical evaluation of an individual's credit history. Many lenders use the credit score to determine how likely a borrower is to default on a loan. Defaulting on a loan can hurt your credit rating.

CSS Profile (a.k.a. Financial Aid Form (FAF))
A supplemental financial aid form required by some schools in order to be eligible for institutional financial aid.

Default
A failure to meet the terms of a loan as stated in the promissory note. Typically, a borrower who fails to make several payments in a row on a loan is considered default. Defaulted loans are often assigned to collection agencies so that funds can be recovered.

Deferment
A temporary postponement of repaying a loan as agreed by the lender.

Delinquent
A failure to meet the terms of a loan as stated in the promissory note and/or to make timely payments on a loan. Delinquency may result in late fees. Continued delinquency can result in default.

Direct Lending
See Federal Direct Student Loan Program (FDSLP).

Disbursement
When a lender releases loan funds to a school and/or borrower.

Disclosure Statement
An official document outlining the actual cost and terms of a loan along with the interest rate and any insurance, origination or other loan fees.

Electronic Funds Transfer (EFT)
The process of wiring funds from one place to another. Many lenders have an EFT program in which payments can be automatically withdrawn from a borrower's bank account on a monthly basis as payment for that borrower's student loans. Certain lenders will offer interest rate reductions or other incentives for borrowers who opt to use EFT.

Entrance Interview
A session in which an administrator, counselor or financial aid officer informs student borrowers about rights and responsibilities of having loans.

Exit Interview
A session in which an administrator, counselor of financial aid officer informs student borrowers of their student loan obligations and responsibilities. Rights and terms of loans are often reviewed during these sessions.

Expected Family Contribution (EFC)
The amount of money a family is expected to contribute towards a student's education. This amount is calculated by the federal government upon receipt of the Free Application for Federal Student Aid (FAFSA). Family taxable and non-taxable income, assets, size of family and number of students attending college among other factors are taken into account when calculating the EFC.

FAFSA (Free Application for Federal Student Aid)
The Federal government's official application that must be completed in order to be eligible for Federal aid and many other types of aid provided by your state and/or college/university.

Federal Family Education Loan Program (FFELP)
A group of loan programs in which the lender is a bank, credit union, savings & loan association or other organization.

Federal Direct Student Loan Program (FDSLP
A loan program in which the lender is the Federal government and the school manages funds.

Federal Pell Grant
A Federal grant awarded to undergraduate students based on need.  

Federal Perkins Loan
A Federal loan awarded by colleges to students based on need with a 5% fixed interest rate.  

Federal Stafford Loan
A Federal loan awarded to students based on need with an subsidized option, where the Federal government will cover interest payments while the student attends college and an unsubsidized option, where the student is responsible for all interest charges.

Federal Supplemental Educational Opportunity Grant (FSEOG)
A Federal grant awarded to only the neediest students.  

Federal Work-Study (FWS)
A program that allows undergraduate and graduate students to work part-time while attending school. Work-Study funds are awarded based on need, the school's level of funding and when the student applies for financial aid. The amount of money a student earns during their Work-Study position cannot exceed the amount they are awarded by their school.

Financial Aid Package
The overall package of grants, scholarships, work-study employment and loans provided to a student by a school's financial aid office.

Financial Need
The difference between the Cost of Attendance (COA) and the Expected Family Contribution (EFC).

Fixed Interest
Interest that remains the same over the life of a loan.

Forbearance
A temporary period, as agreed by the lender, in which no principal payments or smaller loan payments are due to the lender or servicer. Typically, a borrower must meet certain criteria in order to be considered for forbearance. Interest continues to accrue while a loan is in forbearance.

Gift Aid
Financial aid such as scholarships and grants that a student does not need to repay.  

Grace Period
A short period of time after a student graduates, withdraws from school or drops below half time status in which loan payments do not need to be made. Payments begin once the grace period, as established by the loan program, is over. Not all loan programs have a grace period.  

Grant
Financial aid awarded to a student based on need that does not need to be repaid.

Guarantee Agency (a.k.a. Guarantor)
A state agency or private nonprofit institution that is responsible for approving student loans and insuring lenders against losses due to a borrower's default, death, bankruptcy or disability. Guarantors are also often accountable for overseeing the loan process and enforcing federal and state regulations for administering student loans.

Guarantee Fee
A fee, typically paid by the borrower to the guarantee agency, used to insure the loan against default. Guarantee fees cannot exceed 1% of the loan amount and are often deducted from the principal loan amount prior to the loan's disbursement.

Holder
The lender, institution or agency that owns the legal title to a borrower's loan. The holder may be the original lender, a secondary market to which the loan was sold by the original lender or in the event that the loan has defaulted, the guarantee agency.

Income Contingent Repayment
A program in which the size of a student loan payment is contingent upon the borrower's income. As the borrower's income increases, the size of the monthly student loan payments also increase.  s

Independent Student
A student that is at least 24-years old by January 1 st of the academic year and reports only his or her income and if relevant, their spouses income when applying for federal aid or a student that is under the age of 24 and not claimed as a dependent by their parents during the previous tax year, a veteran of the U.S. Armed Forces, an orphan or ward of the court, a graduate student or a supporter of a legal dependent themselves. A student cannot legally declare independence simply because their parents will not help fund the cost of their education.  

Institutional Methodology
The method that a particular institution of higher learning uses to determine how much they believe a family is able to contribute to the cost of their child's education. The Institutional Methodology is used to determine how institutional funds are awarded and cannot be used when awarding Federal government funds.

Insurance Fee
See Guarantee Fee.

Interest
The dollar amount that accrues on a loan at a rate specified by a lender or the Federal government.

Interest Capitalization
The process of adding all accrued interest on a loan to the principal balance of that loan which in effect, creates a new balance from which interest will be calculated. Lenders capitalize interest annually, quarterly or at repayment.

Lender
The institution that provides loan funds to borrowers for student loans on the condition that the money is to be repaid.

Loan
Financial aid money that is borrowed and must be repaid with interest.  

Loan Forgiveness
When the Federal government either cancels or reduces a student loan when a borrower meets certain criteria such as performing military service.

Merit-based Aid
Aid that is awarded to a student based on academic, athletic, artistic or other merit. Financial need is not considered with merit-based aid.

Need Analysis
The method used to calculate how much money a family is able to contribute to their child's college education. In order to be considered for financial aid, a family must submit a Free Application for Federal Student Aid (FAFSA), a CSS PROFILE and/or any supplemental forms required by the college/university. The formula used to determine need is as follows:

  Cost of Attendance (COA)
- Expected Family Contribution
=Financial Need

Need
See Financial Need.

Need-Based Aid
Financial aid that is awarded exclusively on financial need and not on merit such as academic or athletic achievements.

Need Blind Admission
A school policy in which financial need is not taken into consideration when deciding whether or not to admit a student. Not all schools have a need-blind admission policy.

Need Sensitive Admission
A school policy in which financial need is considered when deciding whether or not to admit, reject or wait list a particular student.

Origination Fee
A processing fee, typically paid by the borrower to the lender, used to fund the costs of administering a loan. Origination fees are often deducted from the principal loan amount prior to the loan's disbursement. Many lenders offer reduced origination fees as an incentive for borrowers.

Pell Grant
See Federal Pell Grant.

Perkins Loan
See Federal Perkins Loan.

Parent Loan for Undergraduate Students (PLUS )
A federal loan available to the parents of dependent undergraduate students used to help finance the cost of education. Parents are able to borrow up to the cost of attendance less any other financial aid. A credit check is often required by a lender or the Federal government in order to be eligible for a PLUS loan. PLUS loans are used to help fund the Expected Family Contribution (EFC) and/or any unmet financial need and must be repaid with interest.

Prime Rate
The rate of interest that lenders charge to their best customers. Loans often have interest rates that fluctuate based on prime rate. As the Federal Reserve Board changes their rates, lenders often need to adjust their prime rate accordingly which in effect alters the interest rate on variable rate loans.

Principal
The amount of money borrowed or the amount that remains unpaid on a student loan. The principal balance changes as payments are made and interest is capitalized (if applicable). Interest accrues on the principal amount at a rate specified by the lender.

Private Loan
See Alternative Loan.

Promissory Note
The legal and binding document in which borrowers are required to sign prior to loan funds being disbursed. The Promissory Note states all terms and conditions of the loan.

Renewable Scholarship
A scholarship issued to a student for more than one year. Typically, the student must meet certain academic or athletic requirements in order to maintain the scholarship.

Repayment Schedule
A document that typically outlines the monthly payment amount, payment due dates, interest rate and total repayment period of a student loan.

Repayment Term
The period of time as stated in the promissory note in which a borrower is required to make payments on their student loans.

Scholarship
A form of gift-aid that does not have to be repaid. Eligibility may include a need component or a merit component such as outstanding academic, artistic or athletic achievement.  

Secondary Market
An institution or organization that purchases loans from lenders thereby giving lenders capital to issue more loans. Terms and conditions of a loan do not change when a loan is bought by a secondary market.  

Self-Help Aid
Financial aid such as student loans and work-study.  

Servicer
A business or company that manages the billing and/or administration of loans.

Simple Interest
Interest that is paid only on the principal balance of a loan and not on any interest accrued on the loan. Most Federal student loan programs, with the exception of unsubsidized Stafford loans, offer simple interest.

Stafford Loan
See Federal Stafford Loan.

State Student Incentive Grants
A financial aid program that is run by the state and available for state residents. These grants do not need to be repaid.

Student Aid Report (SAR)
An official document students and parents receive 4-6 weeks after completing the FAFSA that notifies them of their eligibility to receive financial aid and their Expected Family Contribution (EFC).

Student Contribution
The amount of money the Federal government expects the student to contribute to the cost of his or her education.

Subsidized Loan
A loan in which the Federal government will pay any interest accrued while the student is attending school, in grace or in deferment.  

Supplemental Education Opportunity Grant (SEOG)
See Federal Supplemental Education Opportunity Grant (FSEOG).

Unmet Need (a.k.a. Gap)
Any financial need that is unmet by the financial aid package the Financial Aid Office awards to a student.

Ideally, a school will provide the full amount of aid needed to fill the Financial Need as determined by the school and/or the Federal government (Cost of Attendance - Expected Family Contribution = Financial Need). However, due to budgetary constraints, schools are often not able to provide this full amount of aid. The amount of money the family is expected to contribute over the EFC is known as unmet need or the gap.  

Unsubsidized Loan
A loan in which the student is fully responsible for paying all interest charges accrued while they are in school, deferment, in his/her grace period or in repayment.  

US Department of Education
The Federal government agency that administers many student aid programs such as Federal Stafford Loans, Federal Pell Grants, Federal Work-Study, Federal PLUS Loans and Federal Perkins Loans.

Variable Interest
An interest rate that changes periodically throughout the life of the loan. Variable interest rates are often based off of the T-bill rate set by the Federal government or prime rate and may change monthly, quarterly, semi-annually or annually, depending upon the loan program.

Work-Study
See Federal Work-Study.