Glossary

 

Glossary of Student Loan Terms

The following are terms that are commonly used for student loans:

 

A

Academic Year
At least two semesters, two trimesters or three quarters as defined by the college or university. It must include at least 30 weeks of instruction. An academic year doesn’t have to begin or end at the same time for all students.
Annual Loan Amount
Maximum loan amount you can borrow during a single academic year.
Award Letter
A letter a student receives before each semester that explains all of the financial aid the student is eligible for during that term. The letter will include information about offers for student loans, and includes any grants or scholarships that the student has been awarded

B
Borrower
The person who signed the name on your student loan. It could be the student, the student’s parents, or a legal guardian. Legally whoever signs the loan is the one who has to pay it back.
C
Capitalization
A loan repayment arrangement where the borrower agrees that any unpaid interest can be added to the principle, rather than paying the interest when the interest payment is due. The balance of the loan increases by the amount of unpaid interest in the previous month. Then you have to pay interest on the new balance which now includes interest. Capitalization allows student loan debt to grow very rapidly.
Collection Agency
A company or agency hired to collect defaulted student loans. Collection agencies specialize in loan collection.
Collection Costs
Costs that are permitted to be added to a defaulted student loans. The costs range from 16%-25% of the outstanding balance at the time of the default.
Consolidation Loans
Consolidation happens when two or more loans are combined into one loan and one monthly payment. The interest rate on consolidated federally guaranteed student loans is the weighted average of all of the loans that have been consolidated. After consolidation all your loans you must begin paying them within 60 days. Borrowers that have a defaulted student loan can use consolidation as a methodology to bring the loan current as long as the borrower has at least one student loan that is not in default.
Co-Signer
Person who signs the loan in their name as well, usually a parent or grandparent, as an additional borrower. Co-signers are agreeing that they will be equally responsible with the borrower for repaying the student loan. If the borrower doesn’t pay, the loan servicer will ask the co-signer to pay. Most people get co-signers have a lower credit score, and need a borrower that has a higher credit rating to become an acceptable risk.
Credit Score
Also called a credit rating. Credit scoring is a way to rate the risk that the borrower will pay the loan back. The lower the credit score the higher the risk that the borrower will default or fail to pay the loan back with interest. Credit scores generally range between the low 300’s and the mid 800’s.
Credit Rating
See the definition of credit score.

D

Default
The status of a student loan if the student fails to make the monthly payment after 270 days. Default triggers both a penalty and make garnishment likely as the remedy.
Deferment
An option to temporarily put a pause to your student loan payments. Deferment is your right if you are eligible for deferment. In addition if your loans are subsidized, during a period of deferment you are not responsible for the interest on the loan.
Delinquency
The status of a student loan if the student fails to make the monthly payment. Student loans where the agreed upon monthly payment has not been made, when the payment is due are deemed delinquent until they are defaulted.
Dependent Students
A dependent student is expected to provide parental financial information to determine the expected family contribution (EFC). To be considered an independent student the student must be over 24 years old, in graduate school, married, homeless, a veteran or active duty military service member, legally emancipated or a parent themselves.
Direct Loans
Direct loans are federally guaranteed student loans where the government lends money directly to a student, with the debt instrument issued by the school or college that the student attends. There is no bank involved in a direct student loan.
Discharge
The process of cancelling the obligation of a federally guaranteed student loan borrower. Discharge can happen when the borrower dies, the school closes, or the borrower becomes totally and permanently disabled.
Discretionary Income
The amount of money left over after paying necessary expenses. Discretionary income is the basis of all Income Driven Repayment (IDR) plans.

E

Economic Hardship Deferment
Allows borrowers to postpone repayment of their student loans for up to three (3) years. Borrowers that have are unemployed, have a low income, receive federal or state welfare benefits, or volunteer for the Peace Corp, may be eligible for this deferment.
Expected Family Contribution
An index that represents what the College expects the family to contribute to the cost of college, based upon factors such as family income, investment assets, number or people in the household and sometimes home equity.
Exit Interview
An online or in-person meeting where the borrower is informed of options for repayment and managing student loan debt. All borrowers are required are supposed to participate in an exit interview before they leave school finally.Public Service Loan Forgiveness (PLSF)Repayment options that allows borrowers of DL programs that work for Public Service, Tax-Exempt or nonprofit employers to apply to have loans discharged after 10 years of making qualified payments.
Extended Repayment
An option to extend your repayment term to 25 years to reduce the monthly payment. Borrowers that choose extended repayment will have lower payments, and will pay more interest over time. Borrowers must have at least $30,000 in student loan debt to choose this option.

F

Federal Family Education Loan Program (FFELP)
Prior to July 1, 2010, FFELP loans were made by private lenders (banks) with a federal guarantee.
Financial Literacy
Understanding of money related issues such as budgets, financial planning, saving, managing debt, major purchases, and investing.
Forbearance
An option to temporarily put a pause to your student loan payments. Forbearance is at your lender’s discretion. During forbearance interest accrues on all loans subsidized or unsubsidized.
Forgiveness
An option to have your loan debt erased without repayment. There are at least 66 different loan forgiveness payment plans. Forgiveness is always quid pro quo (something for something). In other words to get forgiveness you must give something. The something is usually working in a certain profession, or working for a certain employer, or working in a certain geographic area.

G

Grace Period
The minimum amount of time before your first student loan payment is due.
Guarantor
Non-profit organizations that with the Department of Education, lenders, servicers and schools to ensure student loan borrowers successfully repay their loans.

H

Half-time
Status of students that are enrolled but taking less than a full-time load. A full-time load is generally defined as 12 semester hours. Not every school uses the same standards, so check with your school for the definition of a full-time student. Status as either a full-time of half-time student determines the maximum amount of aid a student is eligible for.

I

Income Contingent Repayment (ICR)
Borrowers that have Direct Loans (DL) allows borrowers a repayment option based upon income and family size. The payments are 15% of disposable income. After 25 years, any remaining balance is forgiven. This plan is typically used with Parent Plus loans.
Income Driven Repayment (IDR)
A group of plans that allows borrowers with federally guaranteed student loans the option to repay their student loans based upon their incomes. IDR options included Income-based repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE) and Income Contingent Repayment (ICR). Borrowers eligible for these options choose lower payments, for a specific term. At the end of the term the borrower is discharged of all other repayment obligations (interest and principle). This type of discharge is known as loan forgiveness. Loan forgiveness can occur at the end of ten years (for public service workers) or 20-25 years for all other options. Loan forgiveness because of IDR options for public service workers is tax free. Loan forgiveness for all other borrowers is taxable.
Income Sensitve Repayment
A plan repayment option that allows borrowers with FFELP loans to reduce normal monthly payments for a period of up to five years. During the income sensitive period the amount of the monthly payment is dependent upon income.
In School Deferment
An option that allows borrowers to postpone payments on federal student loans while the borrower is still in school or until the borrower’s status drops below half-time.

L

Loan Forgiveness
The process that happens when the government cancels the remaining balance of a student loan after the borrower has completed the eligibility of a loan forgiveness program.

M

Master Promissory Note
The document that contains the terms and conditions of the borrower’s student loans and is the borrower’s written commitment to repay the loans according to the terms of the master promissory note. Every borrowers of federal student loans must sign a master promissory note.

P

Paye As You Earn (PAYE)
One of the Income Driven Repayment (IDR) options. This plan allows eligible borrowers to make payments of no more than 10% of their discretionary income. Under this plan after 20 years of qualified payments (10 years if you are an eligible public service worker). At the end of the payment period the balance that has not been paid (both remaining principle and interest) is forgiven.
PLUS Loans
There are two types of PLUS loans, Parent PLUS and Graduate PLUS. Parent PLUS loans are loans that eligible parents of dependent students can use to meet the EFC. process that happens when the government cancels the remaining balance of a student loan after the borrower has completed the eligibility of a loan forgiveness program.
Public Service Loan Forgiveness (PLSF)
Repayment options that allows borrowers of DL programs that work for Public Service, Tax-Exempt or nonprofit employers to apply to have loans discharged after 10 years of making qualified payments.

Q

Qualified Employer
Any Federal, State or Local government employer, or an employer that is 501(c)(3) eligible or a state chartered not-for-profit.
Qualified Payments
Monthly payments made after the borrower has qualified for an IDR plan option.Qualified PlansAny IDR payment plan.
Qualified Plan
Any IDR plan

R

Rehabilitation
For borrowers that default, rehabilitation is an option to return defaulted loans to good standing. In rehabilitation the borrower must work with the loan servicer to make nine on-time, voluntary payments in the agreed upon amount. After the nine on-time payments are made, the loan goes to a new loan servicer and the default is removed from your credit history. Rehabilitation is a one-time option.
Revised Paye As You Earn (REPAYE)
One of the Income Driven Repayment (IDR) options. This plan allows eligible borrowers to make payments of no more than 10% of their discretionary income. Under this plan after 20 years of qualified payments (10 years if you are an eligible public service worker) for your undergraduate loans. The repayment period is 25 years for graduate student loans under this plan. At the end of the payment period the balance that has not been paid (both remaining principle and interest) is forgiven. It was an improvement to the original PAYE plan that allowed 5 million more borrowers to be eligible for IBR payments.
Repayment Period
The length of time that the borrower has agreed to repay their student loan obligation. The standard repayment plan period is 10 years. Some plans allow the borrower to extend the payment period beyond the standard ten year period. Borrowers that choose to extend their repayment period generally pay more in interest.

S

SubsidizedLoans
Where the interest on the loan is paid by the government while the borrower is in school and for any deferment periods. This does not include grace periods for loans issued after July 1, 2012. Perkins loans are always subsidized. Stafford loans can be either subsidized or unsubsidized.
Servicer
Servicer organizations are either for-profit or not-for-profit companies that sends student loan bills and collects payments from the borrowers. Servicers are your customer service agency. They are not your lender. The the lender is the federal government for all federally guaranteed student loans issued since 2010.

T

Treasury Offset
Borrowers that default on the federally guaranteed student loans may incur a penalty whereby the the government is allowed to collect payments that the borrowers would otherwise normally receive. The most common offsets are payments from government agencies like social security, and federal and state tax returns.

U

Unemployment Deferment
A deferment that allows unemployed borrowers to postpone their federal student loan payments if they meet the eligibility requirements.Unsubsidized student loansare loans that are not based upon financial need. The borrower is responsible for paying all interest that accrues on unsubsidized student loans. The interest accrues on unsubsidized student loans while the borrower is in school, during grace periods and during deferments. PLUS loans are always unsubsidized.