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Student Loan Definitions
By
Kayla Korzekwinski
Kayla Korzekwinski is a Scholarships360 content writer. She earned her BA from the University of North Carolina at Chapel Hill, where she studied Advertising/PR, Rhetorical Communication, and Anthropology. Kayla has worked on communications for non-profits and student organizations. She loves to write and come up with new ways to express ideas.
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Annie has spent the past 18+ years educating students about college admissions opportunities and coaching them through building a financial aid package. She has worked in college access and college admissions for the Tennessee Higher Education Commission/Tennessee Student Assistance Corporation, Middle Tennessee State University, and Austin Peay State University.
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Maria Geiger is Director of Content at Scholarships360. She is a former online educational technology instructor and adjunct writing instructor. In addition to education reform, Maria’s interests include viewpoint diversity, blended/flipped learning, digital communication, and integrating media/web tools into the curriculum to better facilitate student engagement. Maria earned both a B.A. and an M.A. in English Literature from Monmouth University, an M. Ed. in Education from Monmouth University, and a Virtual Online Teaching Certificate (VOLT) from the University of Pennsylvania.
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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!
Acceleration
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.
Accreditation
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.
Accrued interest
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
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.
Capitalization
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.Â
Consolidation
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
Co-signer
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.
Default
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.
Learn more: Student loan default: What it is and how to avoid it
Deferment
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.
Delinquent
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.
Discharge
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.
Discretionary income
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:Â What does my FAFSA EFC number mean?
Federal loan
A student loan that comes from the federal government.
Forbearance
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.
Forgiveness
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:Â 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.Â
- Bank statements and records of investments (if applicable)
- Records of untaxed income (if applicable)
Learn more: FAFSA 101
Grace period
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), Saving on a Valuable Education (SAVE) Plan (formerly the REPAYE Plan), Income-Based Repayment, and Income-Contingent Repayment.Â
Learn more: All about income-driven repayment plans
Interest
The cost of borrowing money from a lender. Student loan interest is measured as a percentage of the unpaid principal amount.
Fixed interest
An interest rate that does not change over the life of a loan due to any circumstances.
Variable interest
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.
Also:Â What is the master promissory note?
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.
Origination fee
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.
Prepayment
Making extra payments on a student loan to lower the balance and pay it off faster.
Principal
The amount originally borrowed for a student loan.
Private 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.
Learn more: Public Service Loan Forgiveness: What it is and how it can help you
Refinance
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
Rehabilitation
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.Â
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.
Related: Who is my student loan servicer?Â
Subsidized
Subsidized federal loans do not accrue interest while the borrower is still in school.
Unsubsidized
Unsubsidized federal loans begin accruing interest as soon as they are disbursed.
Key Takeaways
Final thoughts
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!
