Glossary of Financial Terms
Definitions beginning with the letter A
Ability To Benefit (ATB)
The basis on which students without high school diplomas or GEDs may qualify for federal student aid. If your school fails to verify your ATB, or does so inappropriately, you can file an ATB application to discharge federal aid you borrowed to attend that school.
​
Academic Year
The time period between your school year’s official start and end dates. Your school defines how long the academic year is, and your financial aid package is based on a single academic year.
Accrued Interest:
The interest that accumulates and is payable on the unpaid principal balance of a loan.
Adjusted Gross Income (AGI):
A figure based on tax return information that is used for determining eligibility for an Economic Hardship Deferment and Income Based Repayment (IBR). It would include taxable income such as:
-
Income from employment
-
Unemployment income
-
Dividend income
-
Interest income
-
Tips
-
Alimony
It does not include untaxed income such as Supplemental Security Income, child support, or federal or state public assistance.
Alternative Loan:
Also called a private or private education loan, this nonfederal loan is issued through a bank or credit union. An alternative student loan may have a variable interest rate and require a credit check and may not provide the benefits of federal student loans. We do not service these loans for you. For further details please contact the bank or credit union that issued these loans.
​
​
Amortization
​
The process of paying off your loans in regular installments over a period of time.
Annual Loan Limit
​
The maximum loan amount you can borrow during a single academic year. Annual loan limits vary by loan type, grade level, and other factors.
​
Award Letter
​
A letter you receive before your semester begins that details the types of financial aid you are eligible for. This includes details about the student loans, grants, and scholarships you've been awarded. You'll receive an award letter every year you attend school if you apply for financial aid.
​
Definitions beginning with the letter B
​
Borrower:
The individual responsible for repaying a loan. In borrowing a loan, the responsible individual has agreed to the loan's terms and conditions by signing the loan's Master Promissory Note (MPN) or Promissory Note.
​
​
Definitions beginning with the letter C
​
Cancellation Payment:
A cancellation payment is a payment received within 120 days of a disbursement date. This payment reduces the principal balance, loan fees, and applicable interest.
Capitalization:
The addition of unpaid accrued interest to the principal balance of a loan. Capitalization of interest results in a higher principal balance and additional finance charges over the course of repayment and may cause your monthly payment amount to increase.
Consolidation:
Combining numerous federal education loans into a single loan with a new repayment schedule and interest rate.
​
​
Definitions beginning with the letter D
​
Default:
The failure to repay a loan according to the terms the borrower agreed to when signing the loan's Master Promissory Note (MPN). Default on a federal loan occurs after 270 days of non-payment on the account.
Deferment:
An authorized temporary suspension of repayment, granted under certain circumstances.
For subsidized Stafford Loans, the federal government pays the interest during a deferment. For all other loans, the borrower is responsible for paying the interest that accrues during a deferment.
Delinquency:
The failure to make scheduled monthly loan payments when they are due.
Direct Debit:
When you sign up for Direct Debit, we automatically withdraw your monthly student loan payments from your checking or savings account. The transaction happens on the same date each month, so your payments are always on time.
Direct Loan:
A loan that is part of the William D. Ford Federal Direct Loan Program (FDLP). Eligible students and parents borrow Direct Loans directly from the U.S. Department of Education. The FDLP includes subsidized and unsubsidized Stafford Loans, PLUS Loans to parents of dependent students, PLUS Loans to graduate and professional students, and Consolidation Loans.
Disbursement:
The transfer of loan funds from a lender to the school or borrower.
​
​
​
The following are definitions of terms you may find online or in materials relating to student loans and financial aid.
Definitions beginning with the letter F
​
Faculty Loan Repayment Program
A repayment program only available for health professions faculty from disadvantaged backgrounds. It provides those students with funding to help repay their federal student loans. The faculty loan repayment program is run by the Health Resources and Services Administration (HRSA).
Federal Family Education Loan Program (FFELP)
The primary provider of Stafford, PLUS, SLS, and Consolidation loans prior to July 1, 2010 (all federal loans made after this date are with the DL program). FFELP loans were made by private lenders with government backing—which is why, if you had FFELP loans, a private bank’s name was associated it.
Federal Supplemental Educational Opportunities Grants (FSEOG)
Free money provided by the federal government to students with exceptional financial need at participating schools. The amount awarded also depends on when the student's application is submitted, how much other aid the student is awarded, and how much FSEOG funding the school has.
Federal Work-Study Program (Work-Study)
A program that provides undergraduate and graduate students with part-time employment during the academic year to help cover school-related expenses.
Fellowship
Financial support for graduate students that also tracks their academic progress.
Financial Aid Package
The entire combination of grants, scholarships, loans, and work-study funding you receive from all sources (federal, state, institutional, and private). Your financial aid package is detailed in the financial aid award letter you receive each academic year.
Financial Literacy
Your money savvy, or the knowledge you have about money—specifically budgeting, financial planning, saving, managing debt, and investing.
Financial Need
Your cost of attendance minus your EFC. This determines your eligibility for financial aid such as Stafford loans, Perkins loans, work-study, grants, and scholarships.
Fixed Interest Rate
An interest rate that doesn’t change—unlike a variable interest rate, which can change based on certain economic or legislative factors.
Forbearance
A way to postpone your student loan payments or reduce them. Unlike deferment, interest accrues on loans while they're in forbearance, which increases the total amount you owe.
FAFSA® (Free Application for Federal Student Aid):
The form students must complete to qualify for federal financial aid and for most state grants, scholarships, student loans (including Stafford Loans), work-study programs, and many school-based student financial aid programs. Students will need to include household financial information—such as income, taxes, and assets—to determine Expected Family Contribution.
Federal Family Education Loan Program (FFELP):
Private lenders (banks, credit unions, savings and loan associations) provide funds for FFELP Loans, and the federal government guarantees them against default. FFELP includes subsidized and unsubsidized Stafford Loans, PLUS Loans to parents of dependent students, PLUS Loans to graduate and professional students, and Consolidation Loans.
Fixed Interest Rate:
A loan with a pre-established interest rate that does not change during a defined period of time. Currently, federal Stafford, Parent PLUS, and Student PLUS Loans have interest rates that are fixed by law for the life of the loan.
Forbearance:
An authorized temporary reduction or suspension of repayment, granted under certain circumstances. For both subsidized and unsubsidized federal loans, the borrower is responsible for paying the interest that accrues during the forbearance period.
Definitions beginning with the letter G
Grace Period:
A 6-month period before the first payment on a subsidized or unsubsidized Stafford Loan is due. The grace period begins the day after the student graduates, leaves school, or drops below half-time status and ends the day before the repayment period begins.
Grants:
Financial aid awards that may not have to be paid back and are generally awarded based on financial need. Grants are available through the federal government, state agencies, colleges, communities, and other organizations.
Guarantor:
A state or private nonprofit organization that has an agreement with the U.S. Department of Education to administer a loan guarantee program under the Higher Education Act.
​
Grad PLUS Loans
PLUS loans that are only available to eligible graduate or professional students. They have a higher interest rate than Stafford loans, but fewer limitations on how much you can borrow. You must apply for these loans, and they take your credit history into account, which Stafford loans do not.
Graduated Repayment
A repayment plan that allows you to make small monthly payments that increase over time, ensuring you still repay your federal student loan within 10 years. However, during those 10 years you will pay more interest than you would with standard repayment.
Grants
A type of financial aid that you do not have to repay. You may be able to qualify for grants based on your academic or your financial need.
Gross Income
The total income you earn in a year (including non-job-related income) before deducting any federal or state taxes, credits, exclusions, and other withholdings.
Guarantor
Nonprofit organizations that work with ED, lenders, servicers, and schools under FFELP to ensure student loan borrowers successfully repay their loans.
​
​
​
Definitions beginning with the letter I
Interest:
The charge for using a lender's money.
Interest Notice:
You receive an interest notice—instead of a bill—if your loan is in deferment, forbearance, or grace.
An interest notice differs from a bill because you're not required to make a payment. However, making payments on your interest notice can minimize the amount of interest that will capitalize when your account enters repayment.
​
​
Income-Based Repayment (IBR)
A federal student loan repayment plan for low-income borrowers. It also offers loan forgiveness on any remaining balance after 20 or 25 years of eligible payments (10 years if you work for a nonprofit or public service employer). It also offers loan forgiveness on any remaining balance after 25 years of eligible payments. If you have significant federal student loan debt and/or you don't make much money, you may be eligible for IBR.
Income-Contingent Repayment (ICR)
A federal student loan repayment plan specifically for low-income borrowers with DL loans. ICR determines your monthly payment amounts based on your income and family size. It also offers loan forgiveness on any remaining balance after 25 years of eligible payments. If you have significant student loan debt from your DL loans and/or you don't earn much money, you may be eligible for ICR.
Income-Driven Repayment (IDR)
A group of repayment plans that base federal student loan borrowers’ payments on their income. IDR options include income-based repayment (IBR), Pay As You Earn (PAYE), and income-contingent repayment (ICR). After 20 to 25 years of eligible payments (10 if you work for a nonprofit or public service employer), your remaining balance is forgiven under these plans. Which IDR plan you qualify for will depend on a number of factors; however, each must be reapplied for annually.
Income-Sensitive Repayment (ISR)
A federal student loan repayment plan specifically for borrowers with FFELP loans. ISR allows you to reduce your monthly loan payments for up to 5 years before returning to normal payments. If you use this plan, the amount you'll pay each month will be determined based on your income.
Independent Student
A student who isn't required to provide their parents' tax and income information on the FAFSA. You need to be over 24 years old, in graduate school, married, homeless, a veteran or active duty military service member, legally emancipated, or a parent yourself to be an independent student. Even if your parents refuse to pay for college or refuse to provide their tax information on the FAFSA, you are still considered a dependent student unless you meet these criteria.
​
Definitions beginning with the letter L
Lender:
The bank or other institution that provides the money for FFELP Loan borrowers.
Loss of Subsidy:
If you are a first-time borrower on or after July 1, 2013 and you exceed the maximum eligibility (150% of the length of time to complete your specific academic program as defined by your school), you will be responsible for the interest on your subsidized loans while in school and during approved periods of postponing payments. You are a first-time borrower for interest subsidy purposes if you had no outstanding balance on a Direct or FFEL Program loan onJuly 1, 2013, or on the date you obtained a Direct Loan after July 1, 2013.
​
Loan Holder
​
The company that has possession of your loan. Your loan holder can be your lender, guarantor, or ED.
​
Loan Rehabilitation
​
A process that allows you to repair a defaulted federal student loan. To rehabilitate defaulted loans, you work with your loan holder and make nine on-time, voluntary, reasonable, and affordable payments. When complete, your loan is moved to a new holder and a new servicer, and the default line is removed from your credit history. Note: You can only use rehabilitation once.
​
Definitions beginning with the letter M
Master Promissory Note (MPN):
A common form that serves as a legal and binding contract for borrowing Stafford, Parent PLUS, and Student PLUS Loans—either in multiple academic years or for a single academic year. The MPN contains the loan's terms and conditions, including the borrower's responsibilities for repaying the loan.
​
​
Merit-Based Aid
​
Money for college—usually in the form of scholarships or grants—that schools and other organizations award based on your academic and extracurricular achievements, not your financial need.
​
Military Deferment
​
A way to postpone federal student loan payments while you're serving active military duty or National Guard duty during a war, a military operation, or a national emergency. If you're granted military deferment, it will begin when you enter active duty and it will end 180 days after you're demobilized.
​
​
Definitions beginning with the letter N
​
National Health Service Corps (NHSC)
A federal program that focuses on expanding the availability of primary care services in areas with limited access to care. NHSC offers repayment programs that provide financial assistance to help health care workers pay back their student loans.
National Student Loan Data System (NSLDS ®)
The central database where ED makes the information about your federal student aid available to you. To find out how much you've borrowed, who your loan servicer is, and more, log on to NSLDS.
Needs Analysis
The standardized assessment process that schools use to determine your family's need for financial aid.
Net Income
The amount of your income left after subtracting all federal and state taxes, credits, exclusions, and other withholdings from your gross income.
Nursing Education Loan Repayment Program (NELRP)
A repayment program operated by the HRSA. NELRP offers financial assistance to help nurses and nursing faculty working in designated Health Professional Shortage Areas pay off their federal student loans-with preference given to nursing professionals from disadvantaged backgrounds.
Nursing Student Loans (NSL)
Loans specifically for nursing professionals who need to supplement their financial aid for school. These loans have a lower interest rate than Stafford loans, and they come with their own repayment program benefits.
Definitions beginning with the letter P
​
Parent PLUS Loan:
A federal loan for parents of dependent undergraduate students.
​
​
Part-Time Enrollment
Your enrollment status if you take less than a full course load. Not every school uses the same standards, so check with your school to find out your enrollment status.
Partial Financial Hardship
An eligibility requirement for the IBR and Pay As You Earn repayment plans—though it's calculated differently for each of these plans. For IBR, your federal student loan payments must exceed 15% of your discretionary income. Only loans that are eligible for IBR are figured into the calculation. For Pay As You Earn, your federal student loan payments have to exceed 10% of your discretionary income.
Pay As You Earn
A repayment plan that allows you to make payments of no more than 10% of your discretionary income. Pay As You Earn is similar to IBR, but more generous. After 20 years of qualified, on-time payments (10 years if you work for a nonprofit or public service employer), any remaining outstanding balance on your federal student loans may be forgiven. Several restrictions apply.
Pell Grants
Free money provided by the federal government to students with the greatest financial need. You must complete and submit the FAFSA to be considered.
Perkins Loans
Federal student loans that schools award directly to students with exceptional financial need. Perkins loans have a 5% fixed interest rate and come with more deferment and cancellation options and a longer grace period than Stafford loans. You must submit the FAFSA to be considered. As of October 1, 2015, only current Perkins loan borrowers at participating schools are eligible to receive new Perkins loans. In addition, no further Perkins loans will be disbursed after September 30, 2020.
Post-active Duty Deferment
A payment postponement for those called into service for the military or National Guard. You’ll likely qualify for this deferment if you were called to federal or state active duty within 6 months of being enrolled at an eligible school. This deferment will postpone your monthly payments for up to 13 months after you return from qualifying active duty—or until you re-enroll in school (when you can likely start using in-school deferment instead).
Primary Care Loan (PCL)
Loans that help make the cost of college more affordable for medical students specializing in primary care. These loans have a lower interest rate than Stafford loans, as well as specific repayment program benefits. There are very strict rules associated with borrowing PCLs, so make sure that these loans are right for you before you sign on the dotted line.
Principal Balance
The total amount you currently owe, minus any interest that’s yet to accrue. Every time you make a payment, a portion of that money goes toward the interest that is accruing on your loan and any fees you may have been charged, and the rest is used to pay down your principal balance.
Private Loans (Alternative Loans)
Student loans provided by private lenders (like banks or other financial institutions) instead of the federal government. They usually have fewer repayment options, strict repayment terms and conditions, and higher interest rates than federal loans.
Public Service Loan Forgiveness Program (PSLF)
A federal program that allows DL borrowers who work full time for certain public service or nonprofit employers to apply for loan forgiveness after making 10 years of qualifying payments after October 1, 2007.
Definitions beginning with the letter R
​
Repayment Period
The length of time you have to repay your student loans. The standard repayment period for Stafford loans is 10 years, but if you need to pay less each month, you can extend this through other repayment plans. In general, the longer you take to repay your loans, the more you’ll wind up paying in interest over the course of your repayment period.
Repayment Plan (Repayment Schedule)
Your formal agreement with your servicer that details how you'll repay your student loans. Your repayment plan determines how much you pay each month, when you make your payments, and how long you have to complete your repayment.
Repayment Terms
A list of your student loan rights and responsibilities, including your monthly payments. Your lender is required to disclose your repayment terms to you before you commit to borrowing a loan.
Revised Pay As You Earn (REPAYE)
Revised Pay As You Earn (REPAYE) is an income-driven repayment option for federal Direct student loans. Most federal student loan borrowers can qualify for REPAYE, which can reduce monthly payments to no more than 10% of discretionary income. After 20 years of eligible payments under REPAYE, a borrower’s remaining balance would be forgiven (25 years if he or she has any loans from grad school), but that amount is taxable.
​
Definitions beginning with the letter S
​
SALT Courses
SALT's interactive money courses (formerly known as My Money 101™) that cover topics like budgeting, identity theft, student loans, and more to help you borrow smart to pay for college and find more money for life. Many of the schools and organizations we work with recommend these courses for their students and members.
Scholarship
Money you’re awarded to attend an academic institution. You don’t have to repay scholarships—they’re free money.
Servicer
The organization that sends you your student loan bills, collects your loan payments, and provides customer service on behalf of your lender. In other words, they handle the billing for your loan.
Note: Servicers are not the same as collection agencies.
Simple Interest
The interest that accumulates only on the principal balance of your loan—not including any accrued interest that has capitalized.
Stafford Loans
The most common type of federal student loans. The repayment terms of your Stafford loans can vary based on whether they are subsidized or unsubsidized and when you borrowed them.
Standard Repayment
The federal student loan repayment plan that you'll be automatically enrolled in if you don't choose a different one. It allows you to pay the same amount every month for a period of 120 months. If you stick to this schedule, you'll repay your loan in 10 years.
State Grants
Free money provided to students by their state government. Typically (but not always) eligibility is determined based on financial need. Deadlines and application processes vary by state. Check your state's Department of Education website for more information.
State Loan Repayment Program
A program that allows eligible health professionals to have some of their federal student loan repaid for them. Not all states offer this benefit, and you must work in a designated Health Professional Shortage Area to qualify. To find out if you're eligible, or if there is a state loan repayment program available in your state, visit the National Health Service Corps website.
Student Aid Report (SAR)
A list of all of the financial and personal information that you and your family reported on your FAFSA. You and your school both get a copy of the SAR. After you receive your SAR, you may be able to make corrections or changes to your information before your final award is processed.
Student Loan Refund
Leftover student loan money you get back after your school bills are paid. The bursar’s office at your school is usually responsible for delivering student loan refunds to borrowers.
Students To Service Loan Repayment
A program that helps medical students in their last year of school repay their federal student loans. If you participate in this program, you must make a commitment to work in a designated Health Professional Shortage Area.
Subsidized Loans
Loans that the government pays the interest on while you're in school and during approved deferment periods. They will also pay this interest during your grace period if you borrowed these loans before July 1, 2012 or after June 30, 2014. Perkins loans are always subsidized, and Stafford loans can either be subsidized or unsubsidized.
Summer Bridge Deferment
A way to postpone your federal student loan payments if you don't have a remaining grace period but will still be enrolled after a school break. It ensures that your loans won't enter their repayment period between the spring and fall semesters, when your grace period would otherwise be used. You can also use this if you're enrolled at least half time or completing a degree in the spring, then continuing your enrollment at least half time in the fall.
Definitions beginning with the letter T
​
Tax Credits
Tax credits lower the total amount you owe in taxes. For example: If you had to pay $3,500 in taxes, claiming a credit of $2,500 would reduce your actual tax bill to $1,000. Credits may also increase your refund, depending on how much of the credit itself is refundable.
Tax Deductions
Tax deductions lower your taxable income, which could increase your tax refund. For example: say the government takes 10% of the $35,000 you earned ($3,500). If you withheld $4,000 for the year, your refund would be $500 ($4,000 - $3,500 = $500). However, if you qualified for a $2,000 deduction, your taxable income would be lower ($33,000), decreasing that 10% ($3,300) and increasing your refund ($4,000 - $3,300 = $700 … or $200 more!).
Teacher Education Assistance For College And Higher Education Grants (TEACH)
Free money provided by the federal government to education students who commit to teaching for at least 4 years within the first 8 years of graduation at an elementary or secondary school in a high-need area or at an educational service agency that serves low-income families. If the required teaching service isn’t completed, this grant becomes a loan equivalent to an unsubsidized Stafford loan.
Teacher Loan Forgiveness Program (TLF)
A program that partially eliminates the federal student loan debt for eligible teachers. Eligibility depends on where you teach and when you borrowed your loans.
Title IV
The section of the Higher Education Act that authorizes many federal financial assistance programs for higher education in the United States.
Titles VII and VIII
Sections of the Public Health Service Act that entitle health professions students (especially those studying certain fields and those from disadvantaged backgrounds) to receive additional federal financial aid. Title VII and VIII aid have special benefits and strict restrictions, so make sure you read the paperwork carefully before you sign on the dotted line.
Treasury Offset
A penalty of federal student loan default that allows the government to collect your student loan debt by using federal and state payments you would otherwise receive. The most commonly offset payments are federal travel reimbursements, payments from government agencies (including Social Security), and federal and state tax refunds.
Definitions beginning with the letter U
​
U.S. Department of Education (ED)
The federal department that funds all Title IV financial aid programs and operates the DL program. It is also responsible for federal policy for all levels of education.
Unemployment Deferment
A deferment that allows eligible unemployed borrowers to temporarily postpone their monthly federal student loan payments if they meet the eligibility criteria.
Unsubsidized Loans
Federal student loans that are not based on financial need. You're responsible for paying all interest that accrues on your unsubsidized loans—including interest that accrues while you're in school and during your grace period and deferment periods. PLUS loans are always unsubsidized, and Stafford loans can be either unsubsidized or subsidized.
Definitions beginning with the letter U
​
Variable Interest Rate
An interest rate that can change during the life of the loan. Variable rates for federal student loans are usually updated once each year. Federal loans distributed after June 30, 2006 have fixed interest rates, but many private loans have variable interest rates.
Definitions beginning with the letter W
​
Wage Garnishment
The process in which an employer withholds part of an employee's wages to pay for a debt. If you do not pay your student loans, ED has the right to garnish your wages to collect the money you owe.
Withdrawal Date
The date when you formally left school. Your college or university determines the exact date based on their own enrollment standards.