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Your Student Loan Glossary

Your Student Loan Glossary

We get it – student loans are confusing. Before you sign on the dotted line, review our glossary of student loan terms to make sure you know what’s in your contract!

Here are just a few of the common terms you’ll come across when you’re reading through your student loan paperwork

Accrue: To accumulate interest on a loan. For example, your loan may accrue 4 percent interest.

Aggregate loan limit: The cap that renders students ineligible for qualifying for additional loans. Each student’s aggregate loan limit may vary.

Annual loan limit: This is the maximum amount of loans you qualify for each school year.

Bankruptcy discharge: The process of having your student loan cleared in bankruptcy court. This requires the borrower to prove repaying a student loan would cause undue hardship.

Borrower: The person who signs the loan and agrees to its terms and conditions. This could be you, your parents, or another trusted relative.

Consolidate: The process of combining several loans into one loan.

Cosigner: A co-borrower who assumes responsibility for repayment of the loan if the primary borrower defaults.

Cost of attendance (COA): The total amount it will cost to attend a school.

Credit score: A number that determines how likely someone is to repay a loan based on their credit history.

Default: Failure to pay the loan and comply with the terms agreed upon. This occurs when the borrower is 270-360 days delinquent on a federal student loan and 120 days delinquent on a private student loan.

Deferment: A period during which a borrower does not need to repay the principal on a loan. If a subsidized loan is deferred, the federal government will pay the interest accrued during the deferment period.

Delinquency: The status of a loan that hasn’t been paid on time.

Disbursement: The portion of a federal loan your school pays out (typically by applying the money to your school account or paying you directly).

Discharge: When a borrower is relieved of a loan. Loans can be discharged in rare cases, for example of the borrower is rendered totally and completely disabled.

Discretionary income: Income remaining for spending, saving, or investing after basic necessities have been paid. The common definition is your family’s adjusted gross income (AGI) minus 150 percent of the poverty line.

Expected family contribution (EFC): The number that determines your eligibility for financial aid. This number comes from the information you provided on your FAFSA.

FAFSA: Free Application for Federal Student Aid. This is a free document anyone can fill out to determine how much aid they’re eligible for.

Federal student loan: A federal student loan is an education loan made by the federal government to help students pay for college. Examples include the Federal Stafford Loan and the Federal Grad PLUS Loan. 

Financial aid package: The combination of different types of financial aid offered by a variety of sources.

Financial need: The cost of attendance minus your expected family contribution.

Fixed interest rate: An interest rate that doesn’t change during the period of the loan.

Forbearance: A period during which a borrower can stop making loan payments or reduce monthly payments. Interest continues to accrue during this period and the borrower is responsible for paying this interest.

Forgiveness: When a borrower is relieved of a loan. Loans can be forgiven if a borrower meets certain criteria, for example making a certain number of payments and commits to a public service job for a specified length of time.

FSA ID: A username and password that gives you access to Federal Student Aid’s online systems and serves as an online signature.

Grace period: The period of time after graduation or dropping to part-time student status during which you aren’t required to pay loans. This typically lasts six to nine months.

Grant: A monetary gift that doesn’t require repayment. These are often based on financial need.

Holder/loan holder: An entity that holds the borrower’s loan promissory note and can collect payment from the borrower.

Interest: The fee charged when you borrow money.

Loan: Money borrowed that must be repaid.

Loan period: The portion of the academic year you request a loan for.

Loan reference number: The identifying number associated with a Direct PLUS Loan Request.

Loan rehabilitation: An option that for getting your federal student loan out of default.

Loan servicer: The entity for maintaining and collecting payments on student loans.

Master promissory note (MPN): The legal document that signals your commitment to repaying your federal loans for a continuous period of enrollment of up to 10 years.

Perkins loan: A loan for students with exceptional financial need administered under the Federal Perkins Loan Program.

PLUS loan: A loan available for graduate/professional students or eligible parents of undergraduate students.

Prepay: Paying off all or part of a loan before it’s due.

Prepay penalty: A fee charged for paying off a loan early. These fees do not apply to federal or private student loans.

Principal: The loan amount borrowed plus any capitalized interest.

Private student loan: A private student loan is a student loan made by a commercial or state lender, in contrast with a federal student loan, which is made by the federal government. 

Promissory note: The legal document that signals your commitment to repaying your federal loan.

Refinance: Financing your loan again, typically to gain more favorable interest rates or otherwise change the terms of the loan.

Repayment: Paying back money to your loan holder or servicer.

Repayment plan: A plan for paying your student loan debt.

Stafford loan: A federal loan available to undergraduate students. The U.S. Department of Education pays the interest on these loans while a borrower is in school at least half-time, during the six-month grace period after leaving school, and during deferment periods. These are also known as Direct Subsidized Loans.

Student aid report (SAR): A summary of the information on your FAFSA that determines your expected family contribution (EFC).

Subsidized loan: A federal loan that generally does not require the borrower to pay interest while the borrower is in school or in a grace period.

Totally and permanently disabled: Borrowers who can prove they are totally and permanently disabled and thus unable to work may qualify to have their student loans discharged.

Unsubsidized loan: A federal loan the borrower is responsible for paying interest on, regardless of the loan status.

Variable interest rate: An interest rate that changes over the period of the loan.

Wage garnishment: The process of deducting money from a borrower’s salary if the borrower defaults on his or her loan.

William D. Ford Federal Direct Loan Program: Student loans provided by the Department of Education for students attending participating schools.

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