Terms for Understanding Education Loans
 

Capitalization - The process of adding unpaid interest to the principal amount, thereby increasing the total amount to be repaid. To save money, pay interest before it is capitalized.

Default - Failure to pay your loan according to the terms of your promissory note. If you default, your school, the holder of your loan, and state and federal governments can all take action to recover the money. In addition, the default will be reported to national credit bureaus, which could jeopardize your ability to get credit in the future.

Deferment - An authorized period of time during which you may postpone payment on your loan. Interest on Subsidized Direct Loans is paid by the federal government during deferment periods.

Disclosure Statement - Before you receive loan proceeds, you will receive this document listing the principal amount of your loan, fees that have been deducted, the interest rate and the total amount of your indebtedness (principal plus interest).

Expected Family Contribution - The amount you and your family are expected to pay toward your college expenses.

William D. Ford Direct Loan (DL) Program - This program includes Subsidized and Unsubsidized Federal Direct Loans, Federal PLUS Loans for parents and Federal Consolidation Loans.

Financial Aid - Financial Assistance in the form of scholarships, grants, employment opportunities and educational loans.

Financial Need – Is the difference between the Cost of Attendance at your school and your Expected Family Contribution. The amount you are eligible to borrow is determined by your financial need less other financial aid for which you qualify.

Forbearance - An authorized period of time during which the holder of your loan allows you to postpone repayment because of financial difficulty. Interest still accrues on both Subsidized and Unsubsidized Direct Loans.

Grace Period - The period between the time you leave school or drop below half-time enrollment and the time you are obligated to begin repayment.

Guarantee/Default Fee - An insurance premium deducted from loan proceeds prior to disbursement and paid to the guaranty agency that insures your loan.

Guaranty Agency - A state, regional, or national organization that insures Federal Family Education Loans made by lenders.

Holder - The institution with legal title to your loan. It could be your original lender, a secondary market, or in the event of default, a guaranty agency.

Hour Requirements - An undergraduate student must be enrolled in 6 semester hours or more each semester to be eligible to receive a student loan.

Interest - A fee charged in exchange for borrowing money.

Master Promissory Note (MPN) - The legal document listing the terms and conditions under which the borrower repays the loan.

Need Analysis - A process, based on detailed family financial information, used to determine your financial need.

New Borrower - One who has no outstanding (unpaid) loan balances on the date the promissory note was signed.

Notification of Loan Transfer - If your loan is sold and transferred to another servicer, you will receive this document providing the name, address, and phone number of the new servicer and holder. It will also explain where to send your monthly payments and communications.

Origination Fee - A fee charged by the federal government and deducted from loan proceeds prior to disbursement to partially offset the administrative costs of the FFEL Program.

Principal - The amount borrowed. Interest is charged on this amount.

Repayment Schedule - A document you will receive shortly before your repayment period begins detailing your loan balance, estimated total amount of interest owed, amount of each monthly payment, the total number of payments to be made and date your first payment is due.

Secondary Market - An organization established to purchase education loans from lenders, which enables lenders to make new loans.

Servicer - A company that performs administrative tasks associated with education loans.

Subsidized Direct Loans - A loan for students on which interest is paid for by the federal government while the borrower is in school and during grace and other periods of deferment. To qualify, you must demonstrate financial need.

Unsubsidized Direct Loan - A student loan for which the borrower is responsible for all interest from the date the loan is disbursed.