Glossary
Numbers
529 Plans
These are state-sponsored savings plans in which earnings grow tax-free and if used to pay for college, the proceeds are also tax-free.
[Back to top]A
Adverse Credit History
Also called non-status credit history or impaired credit history. It can be caused by being in default on a previous debt, being more than 90 days late on any debt, bankruptcies or other adverse action on any debt. It is not the same as having a low credit score. Parent PLUS Loans perform a check only for adverse credit history.
Alternative Loans
See Private Student Loans.
B
Bankruptcy
A legally declared inability or impairment of ability of an individual to pay creditors. There are many different kinds of bankruptcy that can have different effects on student loans. Federal student loans typically cannot be discharged through bankruptcy. Consult with a financial advisor for more information about bankruptcy.
Borrower
Person legally responsible for repaying a loan and who has signed the promissory note.
C
Capitalized Interest
Unpaid, accumulated interest that is added to the loan principal. Because the principal increases, so does the total cost of the loan. Lenders may add interest back to the principal at varying intervals. Check with the lender for more specific information.
Cash From Savings or Income
Contributions toward the cost of attendance from the student and family. A student financial contribution consists of cash, savings, investments, summer income, funds from Uniform Transfers to Minors Act (UTMAs) or Uniform Gifts to Minors Act (UGMAs), and any other assets. A parent financial contribution towards the cost of education from cash, savings, investments, income, Prepaid Tuition Plan, 529 plans, Coverdell Education Savings Plan, contributions from grandparents or other relatives, and any other assets.
Co-signer
A joint signer of a promissory note for a loan, also called a co-borrower or a surety. The co-signer is secondarily liable for the debt. Undergraduate students are strongly advised to apply with a creditworthy co-signer when seeking a private student loan. This will increase the chances of approval and of obtaining lower interest rates and fees. Some lenders require that students apply with a co-signer regardless of income or credit score.
Most lenders will require a borrower to have a strong credit score (good to excellent) in addition to other criteria such as no negative credit history (missed payments), debt-to-income ratio (amount of debt vs. current income) and even proof of current employment and income.
Student without sufficient personal income or credit history will almost certainly need to apply with a creditworthy co-signer.
A creditworthy co-signer is someone with a good credit history and good credit score, such as:
- A parent
- A guardian
- A grandparent or other relative
Cost of Attendance
The amount of funding needed for a student's education including tuition, room and board, books and supplies, transportation, and other expense as defined by the institution the student is attending.
Coverdell Education Savings Plan
Also known as an Education Savings Account, and formerly called an Educational IRA. This plan allows money to grow tax deferred and proceeds to be withdrawn tax free for qualified education expenses.
Credit Check
A process in which a person has his or her credit report reviewed before credit is extended for a loan or other financial obligation. Most financial institutions will review a credit report from one or more of the three leading credit reporting agencies, Equifax, Experian and TransUnion.
Credit Inquiry
See Credit Check
Credit Rating
See Credit Score
Credit Report
A detailed report outlining the credit history of an individual which includes current and previous debts, payment amounts, late payments, past due amounts and other related information on every credit source the individual has used. The three largest credit reporting agencies are Equifax, Experian and TransUnion.
Credit Score
Also called a credit rating. A measure of the likelihood that an individual will pay debt as agreed. The lower a credit score, the more likely a person is to default on debt. Most lenders rely on credit score to determine eligibility for a private student loan. A credit score can also affect the cost of debt, with lower interest rates and fees reserved for borrowers with better credit scores. Terms of federal student loans generally do not depend on a credit score.
Credit Sensitivity
How much lenders depend on a borrower's credit score when determining approval and rates or fees of an offered loan. Some loans are more credit-sensitive than others. In general, federal loans, such as Stafford Loans, are available regardless of a credit score, and as such should be the first choice for borrowers who have a limited or poor credit score. Private student loans may be attractive options, but they have restrictions on who can qualify for them and may have higher rates and fees for borrowers with poor credit.
Credit Worthy
A creditor’s determination of applicant’s ability to repay a loan. The lender determines factors to consider in the evaluation, such as a minimum monthly income, absence of negative credit, or other credit related criteria.
D
Debt-to-Income Ratio
A borrower's total debt as compared to the borrower's overall income. It is used to measure a person’s ability to borrow.
Default
Failure to repay a loan in accordance with the terms of the promissory note.
Deferment
The ability to postpone payment of a loan for a period of time after leaving or graduating from an educational program or to postpone due to special circumstances. Lenders frequently allow student borrowers to postpone making payments on their loans while enrolled in school at least half-time and extending a number of months after the student leaves their program or graduates. During this time, interest may accrue. Some lenders allow borrowers to pay the accruing interest during this time; these are called interest-only payments.
Deferment usually lasts from the time the money is taken until graduation or until a student leaves their program, plus an additional number of months. These grace periods are typically 6 to 12 months and vary by loan type and lender. Check with the lender for details.
Dependent Student
This classification of a student is used for the purposes of the federal financial aid application. Most traditional college students are dependent – even if they are paying their own way through college or no longer have a relationship with their parents. For financial aid purposes, students who are under the age of 24, attend an undergraduate program, are not married, do not have children of their own, are not orphans or wards of the court, or veterans of the active-duty armed services are considered dependent students. Parental information is required for dependent students on their federal financial aid application.
See also Independent Student.
Direct Lending
See Direct Loans.
Direct Loan Servicers
The U.S. Department of Education's agents contracted to collect Direct Loans and handle deferments, forbearance, repayment options, and consolidation.
Direct Loans
The William D. Ford Federal Direct Loan (Direct Loan) Program is the collective name for the Federal Subsidized Stafford, Federal Unsubsidized Stafford, Federal Parent PLUS Loan, and Federal Consolidation Loan Programs. Loan funds for these programs are provided by the federal government to students and parents through colleges. Students and parents can receive Direct Loans only if the student's school participates in the Direct Loan Program.
Disbursement
When a lender transmits funds on a student loan to the school on behalf of the borrower or to the borrower directly. In general, federal loans will always be disbursed (or paid) directly to the schools, while private student loans may be disbursed to the school or to the borrower directly. Additionally, the rates and fees charged on loans disbursed directly to the borrower may be different from those charged when disbursed straight to the school.
E
Electronic Signature
An electronic signature or the electronic equivalent of a hand-written signature. Also known as eSignature.
Email Address
SimpleTuition requires a unique email address to send information on planning and paying for college. We do not share email addresses with third parties for the purposes of marketing.
Endorser
Someone responsible for repayment of a loan if the primary borrower does not pay as agreed; the endorser is secondarily liable for the debt. An endorser is similar to a co-signer, but typically only used for Parent PLUS Loans. Individuals borrowing Parent PLUS Loans may be required to obtain an endorser.
Enrollment Status
The number of credit hours for which a student is registered. This status determines continuing education students' eligibility for certain loans and loan amounts. Half-time or less is generally 6 or fewer credit hours per term, semester or quarter. Check with the school about how enrollment status is defined.
Expected Family Contribution (EFC)
The amount a student and his or her family will be expected to pay for one year of cost of attendance as determined by the FAFSA. The EFC is used to determine a student’s eligibility for the student financial assistance programs.
Extended Repayment Length
The federal loan repayment plan available to borrowers with more than $30,000 in Direct Loan debt. Under the extended plan, borrowers have 25 years for repayment and can choose to either pay a fixed monthly payment, such as the standard repayment plan, or make graduated payments that start low and increase every two years. Remember that the longer loans are in repayment, the more interest a borrower will pay. Consult with the financial aid office or the U.S. Department of Education to learn more about repayment options.
F
FAFSA (Free Application for Federal Student Aid)
The U.S. Department of Education's Free Application for Federal Student Aid is the first step in the financial aid process. The financial aid application completed by the student, and the student’s parents if applicable, that collects household and financial information. Use it to apply for federal student financial aid, such as a Federal Pell Grant, student loans, and work-study. In addition, most states and schools use FAFSA information to award their financial aid. The FAFSA can be filed for free at the Department of Education's website, www.fafsa.ed.gov.
Federal Grant
A general term for any “free money,” including Federal Pell Grant, Federal Supplemental Educational Opportunity Grant (FSEOG), Federal Academic Competitiveness Grant (ACG), National Science and Mathematics Access to Retain Talent Grant (SMART Grant), and other grants. Eligibility and award amounts may vary from school to school as well as depend on annual federal budget allocations.
Federal Parent PLUS Loan
See Parent PLUS Loan.
Federal Pell Grant
See Pell Grant
Federal Perkins Loan
See Perkins Loan
Federal Student Loans
Loans offered to students to assist in the payment of the costs of higher education that are supported and regulated by the federal government. See also Student Loans.
Federal Subsidized Stafford Loan
See Stafford Loan and Unsubsidized Stafford Loan.
Federal Unsubsidized Stafford Loan
See Stafford Loan and Subsidized Stafford Loan.
Fees
Many loans have additional mandatory charges. These fees are usually presented as a percentage of the requested loan amount. Sometimes fees are added to the amount requested to borrow, but other times fees are deducted from the loan proceeds before disbursement.
Financial Aid
The monetary support a student receives from federally and privately funded sources to attend college. Financial aid can include loans, grants, scholarships, and work-study programs.
Financial Aid Award Letter
Also called an award offer. A means of notifying students of the financial aid being offered by the college or university. The letter typically provides information on the types and amounts of aid offered and the cost of attendance used to determine eligibility. Usually notifications give students instructions on how to reduce or decline the aid offered.
Financial Need
Federal regulations define this as the difference between the cost of attendance and an expected family contribution (EFC). Financial aid grants, loans, and work-study will be offered by each college to fill all or a portion of the student’s need.
Fixed Interest Rate
A loan expense charged to a borrower for the use of borrowed money at a percentage of the amount of money borrowed that does not change over time. See also Interest Rate.
Forbearance
A debt management provision offered by many lenders in which by payments on the loan in question are temporarily suspended.
Forbearance is not automatically granted and requires documented proof of extreme financial hardship or other unusual circumstances. Even if forbearance is granted, the suspended payments will still be due eventually plus any interest that might have accrued on the suspended payments. For more information, contact the financial aid office at the school that issued the loan or the original lender or current servicer of a loan.
Full Deferment
A situation in which the borrower pays neither interest nor principal on a loan. Full deferment is often available during the enrollment period (when the student is enrolled in school) on federal and private student loans.
G
Grace Period
The time between a student leaving the educational program for which they borrowed, such as graduation, and when the borrower needs to make the first payment. For loans in the student's name, this is typically 6 to 9 months after graduation. For parent loans, there may be a shorter period or no grace period at all.
During this time, interest still accrues on the loan. The grace period is effectively an extension of the deferment.
Graduated Repayment
The federal loan repayment plan created for borrowers electing to start out with lower repayments and increase the monthly repayment amount every two years. The length of the repayment period will remain at 10 years. However, borrowers who have over $30,000 in Direct Loans may be eligible to use an extended repayment for up to 25 years and choose to graduate the payments. Monthly payment will never be less than the amount of interest that accrues between payments. Although the monthly payment will gradually increase, no single payment under this plan will be more than three times greater than any other payment. Remember that the longer loans are in repayment, the more interest will be paid. Consult with the financial aid office or the U.S. Department of Education to learn more about repayment options.
Grant
A form of financial aid or monetary assistance that does not have to be repaid and is usually based on need. This is a form of “free money.”
H
Half-Time
Half-time or less is generally considered 6 or fewer credit hours per term, semester or quarter. Check with the school about how enrollment status is defined as it may affect financial aid eligibility. Federal loan programs require that students be enrolled at least half-time.
Home Equity Loan
Loans in which the applicant's residence is used as collateral for a secure line of credit based on the available equity in the home (much like a second mortgage). Typically, homeowners can borrow up to the current value of their home minus any outstanding amount owed.
I
Income Contingent Repayment (ICR)
This federal loan repayment plan makes meeting repayment obligations easier for Direct Loan borrowers with financial hardship. Each year, borrower’s apply for this the ICR plan by submitting documentation of the borrower’s adjusted gross income (AGI), plus the borrower’s spouse's income (if applicable), family size, and the total amount of Direct Loans. Monthly repayment will be calculated based on the lesser of:
- the amount to be paid if the loan was repaid in 12 years multiplied by an income percentage factor that varies with annual income, or
- 20% of monthly discretionary income*.
Be aware that if the payments do not cover the accumulated interest, the unpaid amount will be capitalized once each year. The maximum repayment period is 25 years. If a borrower has not fully repaid the loans after 25 years using this plan, the unpaid portion will be discharged. If this occurs, the borrower may have to pay taxes on the amount that is discharged. This program is not available for Parent PLUS Loan borrowers. Consult with the financial aid office or U.S. Department of Education for more specifics on this program.
Income Based Repayment (IBR)
This federal loan repayment plan utilizes a borrower’s income during repayment to determine monthly repayment for Direct Loans. Each year, borrower’s apply for IBR by submitting documentation of the borrower’s adjusted gross income (AGI), plus the borrower’s spouse's income (if applicable), family size, and the total amount of Direct Loans. For most eligible borrowers, IBR monthly repayments will be less than 10 percent of their income or less for borrower’s with the lowest earnings. To qualify, the borrower must have over 15% of income above 150% of federal poverty level for the borrower’s residence to pay off the loans on a standard 10-year payment plan. Borrowers interested in applying for the Public Service Loan Forgiveness Program must use IBR for some of their 120 qualifying payments. Consult with the financial aid office or U.S. Department of Education for more specifics on this program.
Independent Student
This classification of a student is used for the purposes of the federal financial aid application. The federal definition of an independent student if at least one of the following applies to the student:
- Was born before January 1, 1988 (for the 2011-2012 academic year);
- Is married;
- Is enrolled working on a Master's or Doctorate program (such as an MA, MBA, MD, JD, PhD, EdD, or graduate certificate, etc.);
- Has dependents (other than children or a spouse) in the same residence and who receive more than half of their support from the student, now and through June 30, 2012 (for the 2011-12 academic year);
- Has children who receive more than half of their support from the student;
- Is an orphan or the student was a ward/dependent of the court until age 18; or
- Is a veteran of the U.S. Armed Forces ("veteran" includes a student who attended a U.S. military academy who was released under a condition other than dishonorable).
In unusual circumstances, a student who does not meet any of these criteria may still be considered independent if a compelling case can be made to override the dependent status. This can only be done by a qualified financial aid officer and is very rare.
See also Dependent Student.
Interest
A loan expense charged to a borrower for the use of borrowed money. Interest is calculated as a percentage of the total amount originally borrowed plus any capitalized interest. Accrued interest is interest that accumulates on the unpaid principal balance of a loan.
See also Interest Rate.
Interest Rate
A percentage (rate) of the original amount of a loan, including any accumulated interest, charged to the borrower for the use of borrowed money from a lender.
See also Fixed Interest Rate.
L
Lender
A bank, private company, credit union or other entity from which someone borrows money. Lenders may contract another company to handle billing and customer service for a loan, called a servicer.
Loan
An advance of funds from a lender to a borrower with an agreement that the borrower pays interest on the amount borrowed and pays back the initial amount of the loan over an agreed period of time.
M
Master Promissory Note
See Promissory Note
Monthly Payment
The amount the borrower is expected to pay each month toward a loan.
N
NSLDS (National Student Loan Data System)
The National Student Loan Data System (NSLDS) is the U.S. Department of Education's central database for student financial aid. NSLDS receives data from schools, guaranty agencies, the Direct Loan program, the Pell Grant program, and other Department of Education programs. Borrowers can look up their current federal student loans using the NSLDS at www.nslds.ed.gov.
O
Other Expenses
The component in the cost of attendance for other federally allowable expenses during enrollment period, including transportation, books and supplies, loan fees, and other personal expenses. Some schools itemize these expenses and may differentiate the amount depending on whether a student lives on- or off-campus. Schools may consider other unusual expenses on a case-by-case basis, such as dependent care costs and medical and dental expenses. Contact the financial aid office for more details.
Other Grants
Funds awarded from local grant programs as "free money" that do not have to be paid back. Check with the guidance or financial aid office for availability.
P
Parent/Family Contributions
A mixture of savings, income, and debt from parents and other family members. We define this contribution as the sum of the funds from parents and other relatives for the cost of attendance obtained from cash from savings or income, Home Equity, and a Parent PLUS Loan.
Parent PLUS Loan
A 7.9% fixed-rate loan program available for parents of undergraduate students provided by the federal government under William D. Ford Direct Lending Program in which interest accrues (accumulates) while the student is enrolled. Parent PLUS Loans can be used to cover the full cost of attendance, less other aid. A credit check is required, but only to determine creditworthiness – the lack of adverse credit history. Credit scores are not used to determine eligibility. In some cases when a parent is determined to not be creditworthy, an endorser, similar to a co-signer, may apply to be responsible for repayment of a Parent PLUS Loan if the primary parent borrower does not pay as agreed. A mandatory 4% fee is charged when the funds are disbursed to the school.
Payment Plan
Many schools offer payment plans to help families budget for the cost of their education, limit borrowing, and conserve savings. These plans allow families to spread their payments for one academic year from 4 to 12 months. Contact the school for more details on their program.
Pell Grant
A federal grant program created to give for students with the highest amount of financial need. A student must complete the Free Application for Federal Student Aid to be eligible. Pell Grants are “free money” that does not have to be repaid.
Perkins Loan
A 5% fixed rate federal loan program awarded to undergraduate students with exceptional financial need. This is a campus-based loan program, with the school acting as the lender using a limited amount of funds provided by the federal government. The Perkins Loan is a subsidized loan, with the interest paid by the federal government during the in-school period and the nine month grace period. There are no fees and the loan has a 10-year repayment period.
Prepaid Tuition Plan
A savings plan that allows families to lock in the future cost of tuition at a state college or university. The savings grow at the same rate as tuition increases. Very few schools offer this type of plan.
Principal Amount
The total amount of money borrowed in a loan that includes the original amount borrowed plus any interest that has been capitalized. In some cases, it will be higher than the amount available to the borrower - for instance, if a borrower requests $10,000 in a private student loan with a 5% fee, then the principal amount would be $10,500.
Private Student Loan
A non-governmental loan made by a bank or other private entity expressly for paying for cost of attendance. Private student loans are based on credit score and usually the credit score of a creditworthy co-signer. Sometimes private student loans are called "alternative loans.” Most private loans have a range of possible interest rate and fee combinations. The pricing combination a borrower receives, if approved for the loan, will be determined by the credit profiles of the borrower and co-signer. To search and compare private student loans, visit SimpleTuition Loan Comparison.
Promissory Note
A binding legal contract between a lender and a borrower that 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. This document must be signed by the borrower and any applicable co-signer before the funds are distributed. The borrower should keep this document until the loan has been repaid.
Public Service Loan Forgiveness Program
This federal program helps to repayment eligible Direct Loans for borrowers who work full-time in public service jobs if the remaining balance due on loans after 120 payments is made. The qualifying 120 payments must be made in one or more of the following federal repayment plans:
- Income Based Repayment (IBR) Plan
- Income Contingent Repayment Plan
- Standard Repayment Plan with a 10-year repayment period
Consult with the financial aid office or U.S. Department of Education for more specifics on this program.
R
Repayment Term
The period of time in which a borrower takes on the responsibility of repaying a loan. Each loan has a maximum amount of time over which the loan can be repaid. In general, loans with longer repayment lengths will have lower monthly payments, but a higher total cost.
Room & Board
The component of the cost of attendance that allows for expenses for a place to live as well as for meals. The expenses are for the duration of the enrollment period. Typically schools differentiate the amount depending on whether a student lives on- or off-campus or signs up for the school’s meal plan, prepares their own meals, or has meals with their family.
S
Scholarship
A form of financial assistance that does not require repayment or employment. Generally, scholarships are “free money” from colleges, state and external organizations based on any number of criteria, including financial need, academic or athletic achievement, or public service. Scholarships often require an application that may include an essay, recommendations, or an interview process.
Scholarship & Grants
“Free money” for all federal state, college and external sources for an academic year.
Self-help aid
Student financial aid, such as loans and work-study jobs, requiring repayment or employment.
Servicer
An entity that handles billing and customer service for a loan. The servicer may be a different entity than the lender. The servicer is often the most common point of contact for the borrower.
Stafford Loans
A fixed-rate loan program available to undergraduate students provided by the federal government under William D. Ford Direct Lending Program. Stafford Loans should be used before private student loans. To qualify, regardless of need, students must fill out the FAFSA (Free Application for Federal Student Aid). A mandatory 1% fee is charged when the funds are disbursed to the school.
Standard Repayment Length
The federal loan repayment plan that calculates a fixed monthly amount for 10 years (120 months) or less depending on the loan amount. Unless requested by the borrower, the federal government automatically assigns Standard Repayment for Stafford and Parent PLUS Loans. There is a $50 minimum monthly payment.
State Grants
Funds awarded as "free money" that do not have to be paid back. Many states offer state-sponsored grant programs. Check with the guidance or financial aid office to learn about eligibility requirements and to learn how to apply.
Student Contributions
A mixture of savings, income, and debt. We define student contributions as the sum of the student funds for the cost of attendance from cash from savings or income, Work-Study, Perkins Loan, Subsidized Stafford Loan, Unsubsidized Stafford Loan, and Private Student Loan.
Student Loans
Loans offered to students to assist in payment of the costs of their education. See also Private Student Loan, Federal Student Loans, and Stafford Loans.
Subsidized Stafford Loan
A fixed-rate loan program available to undergraduate students provided by the federal government under William D. Ford Direct Lending Program in which NO interest accrues while the student is enrolled. Subsidized loans are for students with financial need determined by the college using the results from the Free Application for Federal Student Aid (FAFSA). No interest is charged while students are enrolled at least half-time and during grace periods and deferment periods. The interest rate is 3.4% for undergraduates for the 2011-12 academic year and will be 6.8% for subsequent enrollment periods. The amount cannot exceed the annual loan limits for undergraduate students:
- First-Year (Freshman) - $3,500
- Second-Year (Sophomore) - $4,500
- Third-Year and Beyond (Junior, Senior) - $5,500
Consult the financial aid award letter or other communications from the financial aid office to determine eligibility for Stafford Loan funds.
T
Total Cost of Attendance
See Cost of Attendance
Total Cost of Loan
An estimate of the sum of the total payments borrower would be scheduled to make on a loan.
Total of all Grants & Scholarships
The sum of all “free money” for all federal state, college and external sources for an academic year.
Tuition
The amount of money that colleges charge for instruction based on a student’s enrollment status (i.e., half-time or full-time; undergraduate or graduate student; etc.). Tuition can vary widely between colleges. This is major component of the cost of attendance.
U
Uniform Transfers to Minors (UTMs) or Uniform Gifts to Minors Act (UGMs)
These funds are financial accounts, such as a savings account, stocks or bonds, which are tax-advantaged investments that parents and others may put in a child's name.
Unsubsidized Stafford Loan
A 6.8% fixed-rate loan program available to undergraduate students provided by the federal government under William D. Ford Direct Lending Program in which interest accrues (accumulates) while the student is enrolled. Like subsidized loans, a school determines the amount to borrow based on the annual loan limits, cost of attendance, and other forms of financial aid. Interest can be paid while in school and during grace periods and deferment or forbearance periods, or the interest can accrue and be capitalized (that is, added to the principal amount of the loan). The amount cannot exceed the annual loan limit. Please contact the financial aid office for more information.
W
William D. Ford Direct Lending Program
See Direct Loans.
Work-Study
A part-time employment program to assist students to help meet college costs and is considered a form of self-help aid. Schools may participate in the Federal Work-Study (FWS) Program and/or create their own work-study program. Students earn at least the federal hourly minimum wage. The amount of the award can depend on when the student applies for the job, the level of financial need, and the availability of funds from the school. Payment of funds happen regularly based on hours worked.
