Financial Aid Glossary

During the loan process, there may be some terms that you are unfamiliar with. Use the following glossary to find the meanings of difficult loan terms.

Accrued Interest —Interest which accrues on the loan and is payable by the borrower or, in the case of subsidized Federal Stafford Loans, by the federal government during in-school, grace, and deferment periods.

Amortization —The reduction and retirement of a debt through periodic payments of interest and principal.

Annual Percentage Rate (APR) —A percentage calculation that reflects the total cost of a loan (interest plus all fees) on an annual basis.

Capitalization of Fees and Interest —Fees and accrued interest on a loan are added to the principal balance. Both then become part of the principal balance and begin to accrue interest.

Credit Bureau —An agency that compiles, maintains, and distributes credit and personal information to creditors. This information may include a borrower’s payment habits, number of credit accounts, balance of those accounts, place of employment, length of employment, and records of financial transactions. Lenders check with credit bureaus to learn whether a potential customer seeking a loan is likely to repay, based on the way other obligations have been handled in the past.

Credit Bureau Scoring —A quick and consistent method of determining the likelihood that you will repay your loans. It is an evaluation tool that predicts how well you will manage credit, relative to other borrowers, based on your past credit performance. The credit bureau score is a snapshot that focuses on individual borrower behavior. Some examples of the factors used to calculate your credit score include promptness in paying bills, number of credit cards, total credit limit, and the amount owed on accounts.

Credit report —A summary of your credit history. It is maintained by an authorized credit reporting agency and sent to potential creditors, when requested. Credit reports include information such as current and recent addresses, employer information, payment performance for seven years, type of debt you have and the lending institution for each account, available credit, and current balances.

Default —The failure of a borrower either to make installment payments when due or to comply with other terms of the promissory note.

Deferment —A period during which the repayment of the principal amount of the loan is suspended as a result of the borrower meeting one of the requirements established by law and/or contained in the promissory note. During this period, the borrower may or may not have to pay interest on the loan.

Deferred Interest —Interest that accrues, but on which payment is delayed until a later date. Such deferred (accrued) interest may be capitalized.

Delinquent Borrower —A borrower who has failed to make one or more installment payments by the due dates.

Disclosure Statement —A statement of the actual loan costs, including the interest rate and any additional fees, which is presented to the borrower at the time the loan is made (see "Repayment Disclosure Statement").

Forbearance —At the lender’s option, an agreement to accept a temporary cessation of loan payments, smaller payments than were previously scheduled, or an extension of time for making payments. Forbearance may be given for circumstances not covered by deferment that adversely affect the borrower’s ability to meet loan payment obligations.

Garnishment of Wages —The deduction of a portion of a borrower’s paycheck, with or without the borrower’s consent. A lender or the government may take this action to force repayment of a loan that is in default.

Graduated Repayment —Loan repayment that is lower at the beginning of repayment and gradually increases during the repayment period. It is not based on income.

Guarantor —A state agency or private, nonprofit institution or organization that insures lenders against losses due to a borrower’s default, death, disability, or bankruptcy.

Guarantee Fee/Insurance Premium —A percentage of principal charged to the borrower by the guarantor to insure a lender against loss resulting from a borrower’s failure to repay.

Holder —The owner of a loan.

Income -Sensitive Repayment—Loan repayment that is based on the borrower’s income. Payments increase as income rises.

Interest —A charge for the use of money. Interest is calculated as a percentage rate of the loan principal. The interest rate charged can be fixed, which means it does not change over the life of the loan, or the rate can be variable, in which case, it changes periodically. The percentage rate may be tied to one of several indexes such as the Prime Rate or the U.S. Treasury Bills.

Lender —The bank, savings and loan, credit union, or other approved entity from which the borrower obtains a loan.

Loan Period —The academic year or portion thereof for which the applicant is enrolled and is seeking one or more loans.

Origination Fee —A processing fee that is calculated on the principal amount borrowed and is charged to the student by the lender. This fee is normally deducted from the amount of the loan proceeds.

Principal —Principal refers to the total amount borrowed plus any capitalized fees and interest.

Promissory Note —A legal document signed by the borrower when obtaining a loan. It lists the conditions under which the loan is made and the terms under which the borrower agrees to repay the loan.

Repayment Disclosure Statement —A statement of repayment terms of the loan which is required to be sent to the borrower prior to the due date of the first payment of the loan.

Repayment Schedule —A plan which sets forth the principal and interest due in each installment, the number of payments required to pay the loan in full, the interest rate, and the due dates of the first and subsequent payments.

Secondary Market —A lender, agency, or institution that buys education loans from the originating lenders or other holder. Lenders sell education loans to secondary markets to replenish and generate capital for their continuing operations, including making additional loans.

Servicer —Many lenders and secondary markets hire companies that specialize in student loans to handle billing, collections, deferments, etc. Student loan accounts are often assigned to a servicer.

Terms —The specific conditions of a loan, including the requirements governing receipt and repayment of a loan. It is often used more specifically to refer to the charges for the loan, such as interest rate and fees.

Unsubsidized - One of the types of Stafford loans. This type of loan accrues (collects) interest while you're in school, during your six-month grace period after leaving school, and during authorized periods of deferment and forbearance.

Weighted Average Interest Rate - The interest rate determination used for Consolidation loans made on applications received on or after October 1, 1998. To determine the weighted average interest rate of a group of loans:

	Multiply each loan amount by the interest rate for that loan.
	Add the totals together.
	Divide the resulting number by the total dollar amount of all the loans in the group.
	The number you get is the weighted average interest rate.

Example:
John has two loans -- a $10,000 loan at 8.25% and a $2,000 loan at 9%.

	Step 1: 10,000 x 8.25 = 82,500 and 2,000 x 9.00 = 18,000
	Step 2: 82,500 + 18,000 = 100,500
	Step 3: 100,500 divided by 12,000 [10,000 + 2,000] = 8.375

Thus John's weighted average interest rate for the two loans is 8.375%.

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