Student Loan Glossary

Award Letter: A notice from a financial aid office to a student that specifies the financial aid programs and dollar amounts that the student has been granted.

Consolidation: This process takes your existing student loans and combines them into one lower monthly payment. Performing student loan consolidation can reduce your payments by up to 60%.? It saves money and provides additional options for loan repayment.

Cost of Attendance (COA): The total cost that the financial aid office estimates a student will incur during attendance at that college or university.

Default: Failure to repay a loan according to the terms agreed to when you signed a master promissory note. Default may also result from failure to submit requests for loan deferment or cancellation on time. The consequences of default are severe.

Deferment: A temporary period during which a borrower is not required to make payments. Deferments are more common in federal student loan programs rather than alternative loans. For subsidized Stafford Loan borrowers (and Perkins Loan borrowers), many deferments are subsidized, meaning the interest that accrues on the loan during the deferment is paid by the federal government. Some deferments are unsubsidized, meaning the interest that accrues must be paid by the borrower.

Department of Education: The federal agency that establishes financial aid programs and processes for financial aid applications.

Entrance Counseling: An educational session that first time federal student loan borrowers must fulfill before the loan's proceeds can be disbursed. The entrance counseling sessions provide these first time borrowers basic information about student loans and the terms and conditions the loan programs.

Exit Counseling: An educational session that federal loan borrowers must fulfill around the time of graduation. The exit counseling session provides the borrower detailed information about the loans he/she borrowed, the company that will collect the payment and the repayment alternatives that are available.

Expected Family Contribution (EFC): The amount that a student and family can be expected to contribute towards educational expenses over the academic year. The EFC is calculated when the student submits a FAFSA.

Federal Work Study: Federally funded program that allows colleges and universities to create campus based employment programs for financial aid recipients.

Forgiveness: Under certain circumstances, the federal government will cancel all or a part of student loans.

Free Application for Federal Student Aid (FAFSA): The official application form for all federal financial aid programs. The FAFSA form is available online at FAFSAOnline.com.

Graduate PLUS Loan: A federally guaranteed loan program allowing graduate students to borrow up the cost of education minus aid. Payments are deferred until after graduation at which point repayment is at a fixed interest rate. Visit GradLoans.com/graduate-plus-loan/ for more information.

Grants: A type of financial aid award that does not have to be repaid. Grants are often made based on an applicant's financial need or EFC.

Guarantee Fee: A type of fee a borrower pays to a lender. Guarantee fees are collected as a financial reserve to protect the student loan program in cases of student default. Federal Stafford, Parent PLUS, Graduate PLUS, and Federal Direct Student loans have a maximum guarantee fee of 1% of the loan's initial principal.

Interest Rate: Rates are fixed, adjusted annually and set by the Department of Education. The date the federal loan interest rates change is July 1st and covers the next 12 month loan period.

Master Promissory Note (MPN): The binding legal document you sign when you get a student loan. It lists the conditions under which you are borrowing and the terms under which you agree to pay back the loan. It will include information about your interest rate and about loan deferment and cancellation provisions. It's very important to read and save this document because you will need to refer to it later when you begin repayment.

Origination Fee: A fee the borrower pays to the lender for originating a student loan. Origination fees are most often associated with Federal Stafford, Parent PLUS, Graduate PLUS and Federal Direct Student loans. The maximum origination fee for these federal loans is 3% of the loan's initial principal.

Parent PLUS Loan: A credit based loan in which parents of undergraduate students can take out a federally guaranteed loan to cover up to the cost of education minus any other aid received. The interest rate is fixed and repayment begins after the second disbursement. Visit www.ParentPLUSLoan.com for more information.

Perkins Loan: A need based student loan offered by the Department of Education through each college or university with repayment to be paid directly to the college upon graduation. With the Perkins Loan, students are given a nine month grace period and no payments are required while enrolled in school.

Private Student Loan (or Alternative Student Loan): These loans that are not guaranteed by a government agency and are made to students by banks or finance companies. Private student loans generally offer higher loan limits than federal loans. But unlike to-the-parent government loans, they generally offer a grace period with no payments due until after graduation. This grace period ranges as high as 12 months after graduation, though most private lenders offer six months. Visit www.acteducationloans.com for more information.

Scholarships: A financial aid award that does not have to be repaid. College scholarships are generally made based on an applicant meeting certain eligibility criteria.

Stafford Loan: A federally guaranteed need-based loan that allows students to borrow specified funds from lenders to help cover tuition expenses. Stafford Loans allow the student to defer payments while he/she is enrolled school and repayment is at a fixed interest rate. Visit www.StaffordLoan.com for more information.

Subsidized Loan: Interest that accrues on subsidized Stafford Loans while the student is in school (at least half-time) is paid by the federal government on the student's behalf.

Unsubsidized Loan: Interest that accrues on unsubsidized loans must be paid by the borrower, even while he/she is in school. The borrower may make payments or allow the interest to accrue throughout enrollment and have the interest "capitalized" (added to the loan's principle balance). While capitalization eliminates having to make payments while in school it then increases the total cost of a loan.