Borrower: Person who has signed and agreed to the terms in the promissory note and is responsible for repaying a loan.
Capitalization of Interest: Adding accrued interest of unpaid interest payments to the principal amount of the loan rather than paying the interest as it becomes due. Capitalizing interest increases the principal amount of the loan and, therefore, the total cost of the loan.
Co-signer: A person other than the borrower who agrees to assume responsibility for repayment in the event that the borrower fails to repay.
Consolidation: A loan that combines multiple Title IV student loans into a single loan with one monthly payment.
Default: Failure to repay a loan in accordance with the terms of the promissory note.
Deferment: The temporary postponement of loan payments.
Direct Loan Program: The William D. Ford Federal Direct Loan Program provides loans to student and parent borrowers directly through the U.S. Department of Education rather than through a bank or other lender.
Direct Loan Servicing Center: The U.S. Department of Education's agent contracted to collect Direct Loans and handle deferments, repayment options, and consolidation.
Exit interview: A group or individual session during which borrowers who are leaving school or dropping below half-time enrollment receive important information about their repayment obligations.
FFELP (Federal Family Education Loan Program): The FFEL program was initiated by the Higher Education Act of 1965 and was funded through a public/private partnership administered at the state and local level. The program was eliminated after the passage of the Health Care and Education Reconciliation Act of 2010 on March 26, 2010.
Fixed interest rate: A loan with an interest rate that will remain at a predetermined rate for the entire term of the loan.
Forbearance: A period of time during which a lender permits a borrower to temporarily cease making payments, to make reduced payments, or to extend the time for making payments. Forbearances are usually granted at the discretion of the lender at the borrower's request. The borrower is responsible for the interest that accrues and, if unpaid, the interest will be capitalized.
Grace period: A period before the first payment must be made on a loan. The grace period starts the day after a borrower ceases to be enrolled at least half time.
Guarantor: A State or private nonprofit agency that has an agreement to administer the Guaranteed Student Loan programs. The agency insures lenders against losses due to a borrower's default. Also called "guarantee agency."
In-school period: The period during which a borrower pursues his or her studies as at least a half-time student at a participating school. This period begins with the first date of disbursement and ends with the beginning of the grace period.
Interest: A loan expense charged by the lender and paid by the borrower for the use of borrowed money. The expense is calculated as a percentage of the principal amount (loan amount) borrowed.
Lender: A lending institution.
Loan certification: A loan must be certified, or approved, by the Office of Student Financial Services (SFS).
Loan Limits: Limits placed on student borrowers in terms of the maximum numbers of dollars they may obtain through federally funded Student Financial Assistance programs (SFA). Loan limits vary by type of loan, academic level, program length, and whether a student is dependent or independent.
Loan period: The period of enrollment for which a loan is being borrowed.
Master Promissory Note: A multi-year promissory note that is good for 10 years.
Notice of Guarantee: Sent by the guarantee agency to the borrower when a loan has been guaranteed.
National Student Loan Data System (NSLDS): The federal database that collects and maintains student loan and grant data on Title IV federal student aid recipients. Click here for more information about NSLDS.
Origination fee: A fee charged and deducted from the proceeds of the Direct Loan or FFEL program loan before the loan is disbursed. The origination fee offsets some of the administrative costs of loan processing. The fee must not exceed the maximum rate established by law. This fee is deducted from the interest and special allowance the Federal government pays the lender. Generally, lending institutions pass this fee on to borrowers at the time the loans are made.
Perkins: A campus-based federal loan program that provides low-interest student loans to students with financial need.
Principal: The original amount of a debt on which interest is calculated.
Private loan: A private or alternative loan is any loan that is not a federal educational loan.
Promissory note: A legally binding contract between a lender and a borrower. The promissory note contains the terms and conditions of the loan, including how and when the loan must be repaid.
Rebate: An up-front interest rebate subtracted from origination fees on direct loans. The rebate amounts vary by academic year. A reduction in fees results in the student receiving more loan funds and paying less in fees. However, the borrower has to make 12 on-time monthly payments after graduating to maintain the rebate.
Repayment: The period during which a borrower is responsible for repaying his or her loan. Depending on the type of loan, repayment can begin either at the end of the grace period or with the very first disbursement of the loan.
Servicer: A company employed by a lender or secondary market to perform the administrative tasks, such as collecting payments, that are associated with education loans. Original interest and repayment terms remain in effect.
Subsidized Stafford: A federally subsidized student loan made on the basis of the student's financial need and other specific eligibility requirements. Stafford Subsidized loans have subsidized interest, which means interest will not accrue on these loans while borrowers are enrolled at least halftime, during the six-month grace period following graduation, or during authorized periods of deferment. The borrower begins to repay the principal and interest after leaving school.
Unsubsidized Stafford: A federal student loan made to borrowers meeting specific eligibility requirements. Interest is charged throughout the life of the loan. The borrower may choose to pay the interest charged on the loan or allow the interest to be capitalized (added to the loan principal).
Variable interest rate: Rate of interest on a loan that is tied to a stated index and changes as the index changes.