student loan terms

borrower Person legally responsible for repaying a loan and who
has signed the promissory note.
cancellation The release of borrowers from their obligations to
repay all or a portion of their ED loans. Borrowers must meet
certain requirements to be eligible for cancellation.
capitalized
interest Unpaid, accumulated interest that is added to the loan
principal. Because the principal increases, so does the total cost
of the loan.
consolidation The combination of several types of federal
education loans into one new loan. Consolidation simplifies loan
repayment.
default Failure to repay a loan in accordance with the terms of
the promissory note.
deferment The temporary postponement of loan payments;
during this time, the borrower does not have to pay either
principal or interest.
delinquency Failure to make payments when due, as specified in
the promissory note and in the selected repayment plan.
Delinquency can lead to default.
Direct Loans Loans made by the U.S. Department of Education
(instead of a private lending institution) under the William D.
Ford Federal Direct Student Loan Program. Direct Loans consist
of Direct Subsidized Loans, Direct Unsubsidized Loans, Direct
PLUS Loans, and Direct Consolidation Loans. As is true for FFELs,
a student can receive a Direct Unsubsidized Loan regardless of
financial need. The interest rate on Direct Subsidized, Direct
Unsubsidized, and Direct Consolidation Loans is variable but does
not exceed 8.25 percent. The interest rate on Direct PLUS Loans
is also variable but does not exceed 9 percent. Students and
parents can receive Direct Loans only if the student’s school
participates in the Direct Loan Program.
Direct Loan
Servicing Center ED’s agent that collects Direct Loans and
processes payments, deferments, forbearances, and repayment
options.
FFEL The “umbrella” term for the Federal Family Education Loan
Program, consisting of Federal (FFEL) Stafford Loans
(subsidized and unsubsidized), Federal (FFEL) PLUS Loans, and
Federal (FFEL) Consolidation Loans. The interest rate on FFEL
Stafford Loans and FFEL Consolidation Loans is variable but does
not exceed 8.25 percent. The interest rate on FFEL PLUS Loans
is also variable but does not exceed 9 percent.
forbearance Temporary postponement or reduction of payments
because of the borrower’s financial difficulties. A forbearance
also may be an extension of the repayment period. All borrowers
are charged interest during forbearance.
grace period A period of time between when the borrower
graduates or drops below half-time status and when repayment
begins. For a FFEL Stafford Loan or Direct Stafford Loan, the
grace period is six months. During the grace period on an
unsubsidized FFEL Stafford Loan or Direct Stafford Loan, interest
that accrues must be paid or it will be capitalized. For a Federal
Perkins Loan, the grace period is nine months. There is no grace
period for a FFEL PLUS Loan, Direct PLUS Loan, or FFEL
Consolidation Loan. A Direct Consolidation Loan usually has no
grace period, but a borrower might be entitled to one if at least
one of the loans being consolidated is a FFEL Stafford Loan or
Direct Stafford Loan that is in an in-school status.
guarantor The state or nonprofit private agency that administers
the Federal Family Education Loan (FFEL) Program in each state.
interest A loan expense charged a borrower for the use of
borrowed money. Interest is calculated as a percentage of the
principal of the loan, which includes the original amount
borrowed and any capitalized interest. Accrued interest is
interest that accumulates on the unpaid principal balance of a
loan.
lender The organization that made the loan initially; the lender
could be the borrower’s school (for Federal Perkins Loans); a
bank, credit union, or other lending institution (for FFELs), or the
U.S. Department of Education (for Direct Loans).
loan holder The organization that currently “owns” the loan and
to which the borrower owes repayment. Many banks sell loans,
so the initial lender and the current holder could be different.
loan principal The total sum of money borrowed. Loan principal
includes the original amount borrowed plus any interest that has
been capitalized.
Perkins Loans Low-interest (5 percent) loans made under the
Federal Perkins Loan Program to undergraduate and graduate
students. Because the school is the lender, students repay the
school that made the Federal Perkins Loan or to the agent the
school hires to service the loan. A student must demonstrate
financial need to qualify for one of these loans.
PLUS Loans Loans made to the parent of a student. Parents with
good credit histories can borrow to help pay for the education
expenses of a child who is a dependent undergraduate student
enrolled at least half time at a participating school. There are
FFEL PLUS Loans and Direct PLUS Loans. The interest rate is
variable but does not exceed 9 percent.
prepayment Any amount the borrower pays before it is required
to be paid under the terms of the loan’s promissory note. There
is never a penalty for prepaying principal or interest on U.S.
Department of Education loans.
promissory note A binding legal contract between a loan holder
and a borrower. The promissory note contains the loan terms
and conditions, including how and when the loan must be repaid.
By signing this note, the borrower agrees to repay the loan.
repayment schedule A statement the loan holder provides the
borrower that lists the amount borrowed, the amount of monthly
payments, and the date payments are due.
secondary market An agency that purchases student loans from
originating lenders so these lenders can make additional student
loans. The Student Loan Marketing Association (Sallie Mae) is an
example of a secondary market. If such an organization buys the
loan, that organization becomes the “loan holder”.
servicer An agency a school or lender employs to service
(collect) a student loan account. Often, the borrower will deal
with the loan servicer when there are questions about
repayment. Servicers also approve deferments and
forbearances on the lender’s behalf.
Stafford Loans Loans made to undergraduate and graduate
students under the FFEL and Direct Loan programs. Borrowers
can receive FFEL or Direct Stafford Loans regardless of financial
need. The interest rate is variable but does not exceed 8.25
percent.
subsidized loan A federal student loan made on the basis of the
borrower’s financial need and other specific eligibility
requirements. The federal government pays the interest on
these loans while borrowers are enrolled at least half time,
during the grace period, or during authorized periods of
deferment.
unsubsidized loan A federal student loan made to a borrower
meeting specific eligibility requirements, but not based on
financial need. The borrower is responsible for paying all interest
that accrues throughout the life of an unsubsidized loan. During
in-school status, deferment, and forbearance periods, the
borrower may choose to pay the interest charged on the loan
or allow the interest to be capitalized (added to the loan
principal).



				LOAN TERMS