Glossary

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Accrue – The way interest on a loan accumulates or adds up as time passes.

Cal Grant “A” Entitlement Awards – Granted to students from low to middle income families with: a minimum GPA of at least 3.00 (using grades from sophomore and junior years in high school), family income and assets below the state ceilings and demonstrated financial need at his/her college.

Cal Grant “B” Entitlement Awards – Granted to students from disadvantaged or low income families with: a minimum GPA of at least 2.0, family income and assets below the state ceilings and demonstrated financial need at his/her college.

Cal Grant “C” Awards – Granted to students pursuing a vocationally oriented program of study.

Capitalization of Interest – Adding accrued but unpaid interest to the principal balance before the repayment phase begins after a forbearance phase.

Certification – The act of attesting that something is true or meets a certain standard. For example, the school certifies the borrower’s eligibility for a loan, and if applicable, interest benefits. The borrower completes an application, promissory note, or deferment form, thereby certifying that certain eligibility criteria have been met.

Confirmation – A process by which the school, lender or guarantor (on behalf of the school or lender) advises the borrower of the proposed loan types and amounts. The borrower must take action to confirm the loan type or request a specific loan amount. A school, lender or guarantor may establish confirmation for the entire loan or may request that the borrower confirm each disbursement of the loan.

Consolidation – Refinancing several education loans into one new loan with a new repayment term and interest rate.

Co-signer – A person who agrees to be jointly responsible for repaying a loan in addition to the borrower. The co-signer is equally responsible for the debt as long as it is outstanding, unless he/she is formally released from the obligation during repayment.

Credit Bureaus – Track your personal credit history and provide information that may affect your ability to borrow money, open a credit account, buy a car or insurance policy, and even rent an apartment. Repaying your student loan responsibly can help you build a good credit rating, but defaulting on your student loan may damage your credit record and have far-reaching effects.

Default – Failure to pay a loan back according to the terms on the promissory note. When the borrower defaults, any of the following may happen:

  • The default may be reported to national credit bureaus and recorded on the borrower’s permanent credit record.
  • A default can affect the borrower’s credit history.
  • The borrower may be subject to legal action.
  • The borrower’s wages may be garnished.
  • The borrower may be unable to get additional financial aid.

Deferment – Postponing payments of principal and/or interest on a loan. Deferments must be granted by the lender or loan servicer.

Delinquency – Status of a loan once your loan payment has missed the due date. Number of days late to obtain this status may vary from loan to loan. This may make the borrower ineligible for a deferment, forbearance or future financial aid. It may also damage chances for obtaining credit in the future.

Disbursement – Actual receipt of the funds borrowed on a student loan.

Disclosure Statement – A statement included with the disbursement at the time a loan is received, stating the interest rate applying to that loan.

Eligible Non-Citizen -Individuals who are not U.S. citizens but are still able to apply for Stafford and PLUS federal loans. These individuals may be a U.S. permanent resident with an Alien Registration Receipt Card, a refugee with a Departure Record (I-94), or a victim of trafficking and the violence protection act (VTVPA), as certified by the U.S. Department of Health and Human Services (T-visa). For the purposes of federal student loan eligibility schools collect and determine who is an eligible non-citizen.

Expected Family Contribution (EFC) – The information you report on your FAFSA is used to calculate your Expected Family Contribution, or EFC, according to a congressionally determined formula. Your school will use your EFC to determine your financial need and what federal, state, and institutional aid you are eligible to receive.

Federal Direct Student Loan Program (FDSLP) – Program which makes available Stafford and PLUS Loans directly from the federal government rather than through a commercial lender.

Federal Family Education Loan Program (FFELP) – A loan program which enables Federal Stafford and PLUS Loans to be financed by private lenders and guaranteed by the federal government.

Federal Pell Grant Program – Awarded to eligible undergraduates pursuing first baccalaureate or professional degree and certain students enrolled in teacher certification or licensing program. The Federal Pell Grant Program is portable, meaning it can be taken to any college. The maximum award is $3,750 per year where the actual award amount is based on Cost of Attendance, Expected Family Contribution (EFC) and enrollment status.

Federal Supplemental Educational Opportunity Grant (FSEOG) – Awarded to -undergraduates pursuing first baccalaureate or professional degree. This grant is awarded annually. The amount awarded (between $100 – $4,000) is determined by the school.

Fees – Charges made in addition to principal and interest of a loan paid to the lender or guarantor. Fees may cover costs of originating the loan and be insurance against student loan default. Consumer education loans may have additional fees, charged when the loan is originated and/or repaid. Fees are deducted evenly from each disbursement of a federal loan.

Financial Aid Office – The administrative department of a college or university responsible for determining who is eligible for financial aid, based on federal criteria. The Financial Aid Office also certifies loan amounts for which students are approved. A student’s primary source of information and assistance while in school.

Financial Aid Package – Any combination of financial aid (scholarships, grants, student loans, work-study) determined by the Financial Aid Office of a college or university.

Forbearance – Temporary postponement or reduction of student loan payments, based on financial hardship during repayment period. Awarded on a case-by-case basis through lender or loan servicer.

Free Application for Federal Student Aid (FAFSA) – This form that must be completed by students and parents applying for federal student aid, including grants and Federal Stafford Loans.

Garnishment – Automatic withholding of all or part of a borrower’s wages by the federal government if they fail to make loan repayments as scheduled.

Grace Period – Period of time after a student graduates or withdraws from school and before loan repayment begins. Loan payments are deferred (not due) during the grace period.

Guaranty Agencies – Maintain your loan records on behalf of the federal government and issue a guarantee to your lender that you will repay the money you are borrowing. If your loan goes into default, the guarantor assumes responsibility for securing repayment.

Interest – The fee charged to borrow money. The interest is calculated as a percentage of the principal amount owed.

Lenders – Provide funds, up to the amount approved by your school, to help you meet your education expenses. Lenders may keep a loan until it is fully paid or they may sell your loan to a secondary market purchaser when you graduate or leave school.

(LIBOR) London Inter-Bank Offer Rate – LIBOR is the rate on dollar-denominated deposits, also know as Eurodollars, traded between banks in London. The index is quoted for one month, three months, six months as well as one-year periods.

Master Promissory Note (MPN) – A promissory note under which the borrower may receive loans for either a single period of enrollment or multiple periods of enrollment. A multi-year feature permits most borrowers to sign the MPN only once to receive maximum eligibility under the subsidized and unsubsidized Stafford Loan program, as long as the school they attend is eligible.

Need Analysis – The process that determines a student’s need for financial assistance for college and/or graduate school. The analysis compares the family’s ability to contribute to the student’s cost of attendance.

Notification – A process by which the school, lender, or guarantor notifies the borrower of the proposed loan types and amounts. The borrower is required to take action only if he or she wants to reject or adjust the type or amount of the loan.

Ombudsman – This office within the Department of Education acts as mediator between you, the student, and the lender/servicer to settle disputes that arise regarding your loan.

Perkins Loan – A need-based federally guaranteed loan set at a fixed 5% interest rate and available through the school (limited funding available).

PLUS Loan (for parents of undergraduate students and graduate/professional students) – These loans are made to parents of dependent undergraduate students or to graduate/professional students based on credit worthiness, not financial need. Parents or Graduate/Professional students may borrower up to the total cost of education, minus any financial aid received. For a parent borrower, the first payment is due within 60 days after the loan is fully disbursed. For a graduate/professional student borrower, payments may be deferred while the student attends school on at least a half-time basis.

Prime Rate – The prime rate of interest is a rate of interest that serves as a benchmark for most other loans in a country. The precise definition of prime rate differs from country to country. In the United States, the prime rate is the interest rate banks charge to large corporations for short-term loans.

Principal – The original amount of a loan, not including fees or interest.

Promissory Note – Legal contract between a borrower and a lender that includes the borrower’s promise to repay the loan and the terms and conditions of the loan.

Satisfactory Academic Progress – To be eligible to receive federal student aid, a student must maintain “satisfactory academic progress” as determined by the school. Factors such as grade point average and years of study are used to determine if the student is making adequate progress towards the school’s stated graduation requirements.

Secondary Market Purchasers – Companies that purchase student loans from lenders, allowing lenders to make new loans to other students. The terms and conditions of your loan do not change when your loan is sold.

Selective Service Act – The law that requires registration for the military draft in order to be eligible for federal financial aid. It applies to males 18 years and older who were born on or after January 1, 1960, are citizens or eligible non-citizens, and are not currently on active duty in the US Armed Forces. Citizens of Micronesia, the Marshall Islands, and Palau are exempt.

Servicer – The organization that administers student loan accounts and collects loan payments. May or may not be the original lender.

Stafford Loans – Low-interest subsidized and unsubsidized loans guaranteed by the federal government and available to students to fund education.

Student Loan Servicers – Companies hired by lenders and secondary markets to handle the day-to-day management of student loan accounts. They send out statements, process payments, make address changes, handle requests for deferments and forbearance, and answer student questions.

Subsidized – Interest is paid by the federal government while the borrower is enrolled in school at least half-time and during grace and deferment periods.

Subsidized Federal Stafford Loans – To qualify for a subsidized Federal Stafford Loan, you must demonstrate financial need. The federal government pays all of the interest that accrues (accumulates)on the loan while you’re enrolled in school at least half time and during grace and deferment periods.

Unsubsidized – Borrower is responsible for the interest that accumulates on the loan while the student is in school and during grace and deferment periods.

Unsubsidized Federal Stafford Loans – Because an unsubsidized Federal Stafford Loan is not based on financial need, you’re responsible for the interest that accrues on the loan while you’re in school and during grace and deferment periods. You may opt to make interest payments during these periods. If you decide to wait, the interest is capitalized (accumulated and added to the principal balance of your loan).

Variable Interest – An interest rate that fluctuates based on overall performance of the economy. Stafford and PLUS loans disbursed prior to July 1st, 2006 have a variable interest rate which may change once each year, on July 1st.