Glossary
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Academic period A measured time of enrollment (for example, a semester, quarter, clock hours, year, etc.).
Academic year A period schools use to measure a quantity of study. For example, a school's academic year may consist of a fall and spring semester, during which a student must complete 24 semester hours.
Accrued interest The amount of money to be repaid on a loan in addition to the original principal.
Amortization A gradual reduction of loan debt through periodic installment payments of principal and interest.
Annual loan limit The maximum loan amount that may be granted per academic year to a borrower for a particular program.
Annual membership fee The fee charged once a year by organizations such as credit card companies. Many credit cards come without an annual membership fee.
Annual percentage rate (APR) The cost of a loan represented as a yearly rate. APR is calculated using the current interest rate, any fees, and other factors such as the length of repayment.
Average daily balance The outstanding loan or credit card balance in a billing cycle divided by the number of days in the cycle.
Award letter The official document, issued by a college financial aid office, that lists all the financial aid awarded to a student including federal and school funds. These can include loans, grants, scholarships, or work-study. Students can accept or decline all or part of the package.
Balance transfer The moving of unpaid debt from one creditor to another. Credit card issuers sometimes offer "teaser" rates to encourage balance transfers coming in, and charge balance transfer fees to discourage them from going out.
Balance transfer fee The cost of transferring an unpaid credit card balance from one credit card account to another.
Borrower The person who applies for the loan and receives the proceeds (money) of the loan.
Bursar's office The school office that is responsible for the billing and collection of college charges.
Campus-based aid Financial aid programs that are administered by the school. Examples include the Federal Perkins Loan, Federal Supplemental Educational Opportunity Grant (FSEOG), and Federal Work-Study (FWS). The federal government provides the school with a fixed allocation for these funds each year.
Canceled loan A status assigned to a loan that is no longer being processed because the loan proceeds have been returned to the lender. Partial cancellations can occur when a portion of the loan proceeds are returned.
Capitalization An increase in the principal balance of a loan that occurs when a lender adds the interest accrued on the loan to the outstanding principal balance. The more frequently accrued interest is capitalized, the more expensive the loan becomes.
Cash advance The cash funds advanced from a credit card company. Cash advances are assessed special fees and higher interest rates than credit card purchases.
Certification The act of attesting that something is true or meets a standard. The financial aid officer confirms for the lender and guarantor that a loan applicant meets certain eligibility criteria.
Cosigner (or co-borrower) A signer of a promissory note who is secondarily liable for a loan obligation.
Combined bill A bill for all of a borrower's loans serviced by a lender/servicer that enables the borrower to make one monthly payment for all of the loans.
Cost of attendance (COA) An estimate of the student's education expenses for a specified period of enrollment. COA usually includes tuition, fees, room, board, supplies, transportation, and personal expenses.
Credit limit The maximum dollar amount a credit card holder may charge to the account.
Credit line The maximum amount of money available in an open-end credit arrangement such as a credit card or overdraft account.
Credit report A report that contains details about a person's borrowing habits and money-management skills. Lenders use credit reports to determine if they should approve a loan and to set the terms (interest rate, fees, and period) of the loan.
Creditworthy Financially sound enough (with no negative credit history) to justify the extension of credit or a loan.
Cumulative debt limit The total loan amount disbursed to a borrower throughout the student's academic career. This amount must not exceed applicable total loan limits associated with a particular loan program.
Daily balance The sum of a beginning credit card balance, plus any new transactions, plus any periodic finance charge calculated on the previous day's balance, minus any payments or credits posted that day.
Debit card A payment card that is linked to a customer's bank account, from which purchase costs are directly deducted—reducing the account balance.
Debt-to-income ratio This calculation compares a person's outstanding debt payments to his/her income. It is used in an applicant's credit review.
Default A designation that indicates a loan borrower or credit card holder consistently fails to meet the terms agreed upon in the promissory note or credit card agreement. After 270 days of non-payment on federal student loans, it is reasonable to assume that the borrower no longer plans to honor the obligation to repay.
Default fee (guarantee fee, insurance fee) Fee paid to the guarantor to offset the costs of collection and defaults. The fee is a percentage of the loan amount. The lender deducts the fee from the loan amount and remits it to the guarantor.
Deferment A period during repayment when the borrower, on meeting certain conditions, is not required to make loan payments. During deferment, interest payments can be made or postponed. If postponed, interest will accrue and capitalize.
Deferred interest Interest payments that are delayed for the borrower during a specified period and paid at a later time.
Delinquency A period that begins on the day after the due date of a payment when the borrower fails to make the equivalent of one full payment.
Delinquent The status of a loan or credit card account resulting from failure to make consistent and timely monthly payments.
Dependent student A student who is 23 years old or younger and dependent on his or her parents for financial support.
Disbursement date The date when the lender (or escrow agent) releases an electronic funds transfer (EFT) or issues a loan check, not the date the funds are received by the school or student. The funds received date may be several days later than the disbursement date.
Disbursement fee The fee paid to the lender to release private loan funds to the school or student. Paid by the borrower, this fee is usually added to the loan amount.
Disclosure document/disclosure statement The form that details the rates, terms, and fees of a loan or credit card.
Electronic funds transfer (EFT) The electronic transfer of loan proceeds from the lender to a restricted account at the school or the school's financial institution.
Eligible school
1. A post-secondary institution of higher education or a vocational school declared eligible by the U.S. Department of Education
to participate in the Federal Family Education Loan Program (FFELP).
Some guarantors may require schools to complete a separate, agency-specific participation agreement.
2. An institution of higher education that meets Nellie Mae's lending eligibility criteria.
Enrollment status Designation of the student as being full time, less than full time but at least half time, or less than half time by the educational institution in accordance with normal standards of the institution for determining such status of the student.
Entrance counseling Counseling required for federal student loan borrowers before their first loan disbursement. Includes borrower's rights and responsibilities and loan terms and conditions.
Exit counseling Counseling required for federal student loan borrowers before they graduate or withdraw from school. Includes borrower's rights and responsibilities and loan terms and conditions.
Expected family contribution (EFC) The amount a student and family or spouse are expected to pay toward the student's cost of attendance.
Extended repayment plan A repayment plan in which borrowers with federal student loans totaling $30,000 or more may request a 25-year repayment term.
FAFSA (Free Application for Federal Student Aid) The form the student must file to apply for federal Title IV financial assistance, including Stafford Loans. The student must include financial information on his or her household so that the expected family contribution can be calculated.
Federal Family Education Loan Program (FFELP) The Federal Stafford and PLUS loan programs that are funded by private lenders, guaranteed by guarantors, and reinsured by the federal government.
Federal Pell Grant The largest federal grant program, available almost exclusively to undergraduate students. Eligibility and award amounts are determined by the college based on established federal guidelines.
Federal Perkins Loan A low-interest federal loan program administered by the school for undergraduate and graduate programs.
Federal PLUS Loan Application and Master Promissory Note (PLUS MPN) The legal document that a borrower signs to receive Federal PLUS Loan funds. The MPN can be used for a single enrollment period or for multiple periods (up to 10 years).
Federal PLUS Loan Program A federal education loan program that allows parents of dependent, undergraduate students to borrow guaranteed loans (Parent PLUS) and graduate and professional students to borrow guaranteed loans (Grad PLUS).
Federal Stafford Loan Master Promissory Note (Stafford MPN) The legal document that a borrower signs to receive Federal Stafford Loan funds. The MPN can be used for a single enrollment period or for multiple periods (up to 10 years).
Federal Stafford Loan Program A federal education loan program that allows eligible undergraduate and graduate students who attend approved educational institutions to borrow guaranteed loans at a low interest rate. There is a subsidized and an unsubsidized version of this loan.
Federal Supplemental Educational Opportunity Grant (FSEOG) A federal grant for undergraduate students with exceptional financial need.
Federal Work-Study (FWS) A federal program that provides part-time jobs for undergraduate and graduate students with financial need, allowing them to earn money to help pay education expenses.
Fee A charge associated with the processing of a loan. Most federal loans have one or more fees, such as origination and default fees. These fees are usually deducted from the amount borrowed before the loan is disbursed. Fees for private student loans (such as disbursement and repayment fees) are added to the approved loan amount. Note: Interest on a loan accrues on the total amount, including principal paid to the borrower or school and any loan fees.
Finance charge The amount of money a lender may charge to borrow a loan. A finance charge is also assessed by credit card companies on any unpaid monthly balances.
Financial aid eligibility (financial need) The difference between the total cost of attendance and the expected family contribution.
Forbearance A period—granted in 12-month intervals for up to five years—during which smaller-than-usual or no payments are required. If no payments are made, the interest will accrue and capitalize. Forbearance is granted at the discretion of the lender.
Good faith The lender trusts your intentions to make payments, make them on time, and not default on your loan.
Grace period A six- or nine-month period granted to a student after a separation from school and before repayment begins.
Graduated Repayment Plan A repayment plan in which the borrower makes reduced monthly payments—that may be as low as interest only—for an established period of time, followed by standard payments of principal and interest for the remainder of the loan period. The minimum payment must at least cover any interest accrued.
Graduation date The date when the student ceases to be at least a half-time student, not the date of the graduation ceremony.
Guarantee A commitment by the guarantor to reimburse a lender or subsequent holder of an approved loan when the borrower fails to repay the loan due to the borrower's death, disability, default, or bankruptcy.
Guarantee fee/insurance fee See default fee.
Guarantor (guaranty agency) A state or private, non-profit organization that administers a student loan insurance (guarantee) program for either federal or private loans.
Holder The organization that owns the loan and has the right to collect from the borrower.
Income-sensitive repayment plan A repayment plan under which the borrower makes monthly payments based on his or her current income. (Documentation is required.) The payment amount is adjusted each year. The minimum payment must at least cover any interest accrued.
Independent student A student who meets one or more of the following criteria:
- is at least 24 years old by December 31 of the award year
- is an orphan or ward of the court
- is a veteran of the U.S. Armed Forces
- is a graduate or professional student
- is married
- has legal dependents other than a spouse
- is a student for whom the school's financial aid administrator determines and documents the student's independent student status based on the administrator's professional judgment of the student's unusual circumstances
Index An index is a money market rate such as the prime rate or a Treasury bill that lenders use to determine interest rates for the loans they offer to customers. An index is used almost exclusively for variable rate loans.
Interest The charge made to a borrower for use of a lender's money.
Interest rate The actual rate of simple interest paid by the borrower. Different types include variable (adjusts according to economic and market conditions on a monthly or annual basis) and fixed (the interest rate remains the same for the term of the loan).
Late charges/late payment fee Charges that a lender or credit card issuer may require the borrower to pay if he or she fails to pay all or a portion of a required installment payment within a certain number of days after it is due.
Legal guardian An individual appointed by a court to be the guardian of a person and specifically required by the court to use his or her financial resources to support that person.
Lender The organization, bank, or lending institution from which a student loan is borrowed.
LIBOR The London Interbank Offered Rate is an international index based on the interest rate that banks charge each other for loans in the London wholesale money market. Some consumer loans, including private education loans, have variable interest rates that are formulated using LIBOR plus a margin.
Loan origination All of the steps required to initiate a loan from application to final approval and disbursement.
Loan period A time, defined by the school, for which the loan is requested (for example, September to May, January to May).
Loan proceeds The funds disbursed by a lender for a borrower to a school, to an agent, or directly to the borrower by issuance of a check, master check, or by electronic funds transfer.
Minimum finance charge The lowest possible charge for using a credit card, comprised of interest costs and other fees.
Minimum payment amount The minimum amount a loan borrower or credit card holder has to pay to keep an account from going into default. The minimum amount paid will be the higher of either 1) a percentage of the outstanding unpaid balance, usually 2%–3% of the balance or 2) a minimal fixed amount, such as $20, that must be paid every month.
Need analysis The process that determines a student's eligibility to receive financial aid.
Nontransferable Incapable of being assigned to another party; for example, a borrower cannot give someone else her loan proceeds, and a credit card holder cannot let someone else use his card.
Origination See loan origination.
Origination fee The fee charged to consumers when borrowing federal loans.
Past due Status that occurs if a monthly bill is still unpaid after its due date.
Periodic finance charge The finance charge for credit card transactions (purchases, cash advances, etc.) charged at the end of each billing cycle (usually every 30 days).
Perkins Loan A low-interest federal loan program administered by schools.
Pre-qualification or pre-approval The application process by which a potential PLUS or private student loan borrower can seek faster credit approval results.
Principal The amount borrowed. It is the amount of a loan that must be repaid upon maturity and the amount upon which interest (that also must be repaid) is charged.
Principal balance The outstanding amount of the loan on which the lender charges interest. As the loan is repaid, a portion of each payment is used to satisfy accrued interest; the remainder of the payment is used to reduce the outstanding principal balance.
Promissory note The legally binding document or "promise to pay" that a borrower signs before receiving loan proceeds. The promissory note includes information about the terms and conditions of the loan.
Repayment fee The fee paid by the borrower to the lender at the onset of repayment. The fee is calculated based on the outstanding loan balance at the time repayment begins.
Repayment period The time when interest accrues on the loan and principal payments are required. For FFELP loans, the repayment period excludes any period of authorized deferment or forbearance; however, interest will continue to accrue during these periods for PLUS and Unsubsidized Stafford Loans.
Requested loan amount The amount indicated on the application by the borrower.
Revolving credit Typical of credit card loans, checking account cash reserves, or overdraft accounts that have pre-approved lines of credit. An account that requires a minimum payment each month plus service charges on the remaining balance. As the balance declines, so does the service charge.
Satisfactory academic progress (SAP) The level of academic standing (defined by the school) that a student must maintain to continue receiving federal financial aid.
Servicer An organization that monitors and collects loans for the holder.
Smart Option Student Loan The Sallie Mae Smart Option Student Loan is an ideal solution for students who still need funds after they have maximized grants, scholarships, and federal loans.
Status The position of the loan or loan application in the processing cycle. Status changes occur throughout the life of the loan, from application receipt to full repayment or cancellation of the loan.
Student aid report (SAR) The report the student receives from the federal government after filing the FAFSA. It details the student's eligibility for federal financial aid.
Subsidized loan A loan eligible for interest benefits paid by the federal government. The federal government pays the interest that accrues on subsidized loans during the student's in-school, grace, authorized deferment, and (if applicable) post-deferment grace periods.
Total finance charge The credit card finance charge calculated with the following formula: average daily balance multiplied by the daily periodic rate multiplied by the number of days in the billing cycle.
Unsubsidized loan A non-need-based loan such as an Unsubsidized Federal Stafford Loan or a Federal PLUS Loan. The borrower is responsible for paying the interest on an unsubsidized loan during in-school, grace, and deferment periods, in addition to repayment periods.
Verification A school's procedure for validating the accuracy of the financial information provided by the student when requesting federal aid.
Withdrawn A status assigned to a loan application that is no longer being processed.