Student-centric advice and objective recommendations
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Student Loan Definitions
Below is a list of terms and definitions that we think are important to understanding student loans. If you’re looking to better inform yourself about student loans, read on to learn!
An acceleration clause allows student loan lenders to require that the entire loan balance be immediately paid when certain requirements are met; for example, when loans go into default.
If a higher education institution is accredited, it meets quality standards set by the Department of Education. Attending an accredited school is a requirement for most student loan lenders.
The amount of interest that has accumulated on a student loan since its disbursement.
Annual percentage rate (APR)
The amount of interest that is charged annually on a student loan. It is a percentage of the principal loan balance.
Autopay is a program that borrowers can opt into. It allows for student loan payments to be automatically withdrawn from a bank account on the due date.
When unpaid interest on a student loan is added to the principal balance. This increases the balance of the loan and raises interest payments. It usually occurs when interest has gone unpaid for too long.
Consolidation refers to the combination of multiple student loans into a single loan. The new loan combines the balances of all the loans. Both federal and private loans can be consolidated, though only federal loans can be consolidated into a Federal Direct Consolidation loan.
Learn more: How to consolidate and refinance student loans
A person, other than the student borrower, who agrees to take on equal responsibility for the repayment of a student loan. A co-signer can make borrowers more eligible to receive private student loans if they don’t meet credit or income requirements.
Learn more: How to find a cosigner
Cost of attendance (COA)
The estimated amount that students will pay to attend a school. It includes tuition, fees, room and board, textbooks, etc.
Student loans go into default when a borrower misses months of payments. Default has several negative effects including acceleration, wage garnishment, and damage to the borrower’s credit score.
Pauses monthly student loan payments temporarily. Student loans can be deferred for several reasons including financial hardship, unemployment, and returning to school. You must apply to qualify for deferment.
Student loans are delinquent after one missed payment. Student loans remain in delinquency until the borrower makes the missed payments, changes their repayment plan, or applies for deferment or forbearance.
If you manage to discharge your student loans, you will no longer have to repay them. Borrowers can receive discharge due to total and permanent disability, bankruptcy, death, or closure of their school.
A portion of your income in comparison to poverty guidelines. Discretionary income is calculated differently depending on your repayment plan.
- For PAYE, Income-Based Repayment, and loan rehabilitation, discretionary income equals the difference between your annual income and 150% of the poverty guideline for your family size and state of residence.
- For Income-Contingent Repayment Plan, discretionary income is the difference between your annual income and 100 percent of the poverty guideline for your family size and state of residence.
Expected family contribution (EFC)
A number used to determine a borrower’s eligibility and need for federal financial aid. Your family’s untaxed income, assets, and benefits are all relevant factors in calculating your EFC. The numbers used come from the information provided in the FAFSA.
Also read: What does my FAFSA EFC number mean?
A student loan that comes from the federal government.
Pauses monthly student loan payments temporarily (interest will still accrue). Borrowers can apply for forbearance if they’re experiencing financial hardships, medical expenses, changes in employment, etc.
Relieves borrowers’ obligation to repay student loans. You could earn loan forgiveness in a few ways, such as Public Service Loan Forgiveness and completing an income-driven repayment plan.
Read more: Guide to student loan forgiveness programs
Free Application for Federal Student Aid (FAFSA)
Financial aid recipients must complete the FAFSA application annually for federal student loan eligibility. The information required for the FAFSA includes:
- Social Security Number
- Alien Registration Number (if you are not a U.S. citizen)
- federal income tax returns, W-2s, and other records of money earned.
- Bank statements and records of investments (if applicable)
- Records of untaxed income (if applicable)
Learn more: FAFSA 101
A timeframe in which borrowers do not need to make student loan payments. The grace period starts when a student graduates, leaves school, or drops below half time enrollment. The grace period is a time for the student loan borrower to find employment and establish their finances before having to make monthly payments.
Learn more: What is a student loan grace period?
Income-Driven Repayment Plan (IDR)
Alternative payment plans for federal student loans. These plans base monthly payments on annual income. Those with lower incomes will have lower monthly payments. After the IDR repayment period ends, the government forgives the borrower’s remaining balance. The four plans are Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), Income-Based Repayment, and Income-Contingent Repayment.
Learn more: All about income-driven repayment plans
The cost of borrowing money from a lender. Student loan interest is measured as a percentage of the unpaid principal amount.
An interest rate that does not change over the life of a loan due to any circumstances.
An interest rate that changes over the life of the loan due because it is based on an economic benchmark that fluctuates. Most student loan lenders use London Interbank Offered Rate, or Libor.
Master Promissory Note
A legal document that a borrower signs when receiving student loans. It outlines the terms of the loan and the borrower agrees to them.
National Student Loan Data System
The Department of Education’s database of student aid. Contains information about a borrower’s loans such as the principal balance and repayment period.
Borrowers pay an origination fee to the lender for processing a student loan. It is a percentage of the principal balance. A loan may or may not have an origination fee depending on the lender.
Making extra payments on a student loan to lower the balance and pay it off faster.
The amount originally borrowed for a student loan.
A student loan that is from a private company such as a bank or credit union.
Public Service Loan Forgiveness (PSLF)
The federal government started the PSLF program in 2007. The program encourages graduates to pursue a career in public service. After making 120 qualifying payments, an eligible borrower will have their remaining student loan balance forgiven.
Consolidation of private loans with a private lender. The borrower trades multiple student loans for a single loan with one monthly payment.
Learn more: How to consolidate and refinance loans
A way to resolve a defaulted student loan. Requires the borrower to agree in writing to make 9 voluntary and affordable monthly payments. The lender will determine the repayment amount. The payments must be made over the course of 10 consecutive months.
Learn more: Student loan default: How to get out of it
Standard repayment plan
The basic repayment plan that borrowers of federal loans are automatically placed on. Payments are made monthly over the course of 10 years.
Student loan servicer
Companies and organizations that collect loan payments, answer customer service questions, and perform administrative tasks associated with the loan.
Subsidized federal loans do not accrue interest while the borrower is still in school.
Unsubsidized federal loans begin accruing interest as soon as they are disbursed.
Make sure that you apply for all the scholarships that you qualify for. Scholarships, which never need to be paid back, are available for every level of your academic journey!
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