A
Accrued Interest – Interest that accumulates 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 approved deferment periods.
Amortization – The reduction and retirement of a debt through periodic
payments over time.
Annual Percentage Rate (APR) – A percentage calculation that reflects the
total cost of a loan (interest plus all fees) on an annual basis.
C
Capitalization of Fees and Interest – The process by which 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 Report – A summary of your credit history maintained by an
authorized consumer reporting agency and sent to authorized parties, when requested.
Credit reports include information such as current and recent addresses,
employment information, payment performance for at least the past seven
years, type of debt you have and the lending institution for each account,
available credit and current balances.
Credit Scoring – A quick, consistent method of determining the likelihood
you will repay a future debt. It is an evaluation tool that predicts how
well you will manage credit, relative to other borrowers, based on your
past credit performance. Some factors used to calculate your credit score
include promptness in paying bills, the amount owed on each account, total
debt, number of accounts (including credit cards), total credit limit and
the age of your accounts.
D
Default – The failure of a borrower either to make payments when due or to
comply with other terms of the promissory note.
Deferment – A period during which repayment of the principal amount of the
loan is suspended as a result of the borrower’s meeting one of the
requirements established by law and/or contained in the promissory note.
During this period, the borrower may choose to pay the interest on the
unsubsidized loans.
Delinquent Borrower – A borrower who has failed to make one or more
scheduled payments by the due date.
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 also “Repayment Disclosure Statement”).
Due date advancement – If additional payments are received the due date
will advance automatically into a future date depending on how many
monthly payments were satisfied by the payment. If the due date is
advanced on an account that uses the EFT option, the EFT will not pull
until the next due date arrives.
E
Exit Counseling – A mandatory session for Federal Stafford Loan borrowers
where information is presented prior to graduation or following a drop in
enrollment status to less than half-time. Information presented includes
loan repayment and debt management strategies.
F
Federal Default Fee – H.E.R.A. requires a mandatory fee equal to 1% of the
principal amount of the loan. Fee is effective July 1, 2006.
Federal Family Education Loan Program (FFELP) – A federal program of
education loans, including the Federal Stafford Loan and the Federal
PLUS Loan, provided by the U.S. Department of Education but financed by
private lenders/financial institutions.
Federal Consolidation Loan – A federal loan program offered by eligible
lenders that allows most federal student loans to be refinanced into a
single new loan, often with a longer repayment term and lower
monthly payment.
Federal Perkins Loan – A need-based federal student loan, which is issued
and administered by a participating school.
Federal Stafford Loan – A federal student loan issued by a participating
lender. There are two types, Subsidized and Unsubsidized. Subsidized
Federal Stafford Loans are based on need and the interest is paid by the
federal government while the borrower is in school, during the grace
period and during approved deferment periods. Unsubsidized Federal
Stafford Loans are not based on need and the borrower is responsible
for paying all interest that accrues as soon as funds are disbursed.
Financial Aid Office – The financial aid office at your school of
attendance that awards financial aid (including Federal Stafford Loans)
based on federal criteria and cost of attendance figures. The school’s
financial aid administrators can provide information about which lender
to choose, how to apply for loans and getting loan requests certified.
They also are a good resource for information about other financial aid
matters such as scholarships and work-study programs.
Forbearance – An agreement between the lender/holder/servicer and the
borrower to accept a temporary suspension 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, such as economic hardship.
G
Garnishment of Wages – The deduction of a portion of a borrower’s paycheck
by his/her employer, with or without the borrower’s consent. A lender/holder
or the government may take this action to force repayment of a loan
that is in default.
Guarantee Fee/Insurance Premium – A percentage of the principal charged to
the borrower by the guarantor to insure a lender/holder against loss
resulting from a borrower’s failure to repay.
Guaranty Agency (Guarantor) – A state agency or private, nonprofit
organization that insures lenders against losses due to a borrower’s
default, death, disability or bankruptcy.
H
Holder – The party that currently owns the loan and holds its legal title.
I
Interest – A charge for the use of money. Interest is calculated as a
percentage 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 financial indexes such as the Prime Rate,
LIBOR or U.S. Treasury Bills.
L
Lender – The bank, savings and loan company, credit union or other
approved organization 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.
M
Master Promissory Note (MPN) – The legally binding contract between the
borrower and the lender of a Federal Stafford Loan. By signing the MPN,
the borrower agrees to all terms and conditions, including the
responsibility to repay all borrowed funds along with any interest and
fees that are charged. Unlike other promissory notes where only one loan
can be borrowed per signed note, the MPN allows a student to borrow
multiple Federal Stafford Loans using the single note (for up to 10 years
from the specified lender).
O
Origination Fee – A loan processing fee that is payable to the lender or
loan originator; in the case of Federal Stafford Loans, the fee is paid to
the federal government. It is calculated as a percentage of the principal
amount borrowed and is typically charged to the borrower by the lender
(although some lenders pay a portion or all of this fee on behalf of the
borrower). This fee is normally deducted from the amount of each loan
disbursement.
P
Payment Application – While in repayment, payments are automatically
applied to fees, interest, and then principal. If additional payments are
received that satisfy the fees and interest the remaining portion of the
payment is automatically applied to the principal balance.
Principal – 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.
R
Repayment Disclosure Statement – A statement of the loan’s repayment terms
that is 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 maximum number of payments allowed to pay the
loan in full, the current interest rate and the due dates of the first and
subsequent payments.
S
Secondary Market – A lender, agency or institution that buys loans from
the originating lender or other loan holder. Lenders sell loans to
secondary markets to replenish and generate capital for their continuing
operations, including making additional loans. Terms and conditions of
the loans do not change when it is sold.
Servicer – A company that specializes in handling billing, collection,
deferments and other loan transactions for the lender/holder.
T
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 the interest
rate and fees.
U
US Dept of Education – Federal agency that administers several major
student aid programs, including the Federal Stafford Loan Program. The
U.S. Department of Education produces, distributes and processes the Free
Application For Federal Student Aid (FAFSA), which is used to determine
students’ eligibility for federal funds.
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