Financial Aid Terms

Here's an at-a-glance alphabetical listing of terms commonly used in the financial aid arena and their meanings.

Campus-based Programs:  The Federal Perkins Loan, Federal Work-Study, and Federal Supplemental Educational Opportunity Grant (FSEOG) programs are often collectively referred to as the campus-based programs because the funds for these programs are administered directly by the school's financial aid office.

Capitalization of Interest:  Addition of unpaid interest to the principal of the loan. This increases both the total loan debt and the monthly payment.

Consolidation:  Combining of existing federal loans into one new loan, which may extend the repayment period and/or lower the payment amount.

Cost of Attendance (COA):  Includes tuition, fees, the student's living expenses while he or she is attending school, and other costs such as costs related to a disability or for dependent care. The COA is determined by the school, using guidelines established by federal law. The COA, together with the student's Expected Family contribution (EFC), helps determine the student's need for funds.

Default:  Occurs when the borrower fails to repay a loan in accordance with the terms of the promissory note.

Default (Guarantee Fee): A federal fee deducted from the loan amount that covers default insurance.

Deferment:  Conditions in which a borrower who meets certain criteria may temporarily postpone payments on the principal amount of the loan, after the loan has entered repayment. The U.S. Department of Education pays the interest on some loans during deferment.

Disbursement:  Loan Funds issued and sent to the school by check or electronic funds transfer (EFT) for educational purposes.

Entrance/Exit Interview:  A counseling session about loans that student borrowers must attend before receiving student loan funds and before leaving college.

Estimated Financial Assistance (EFA):   The amount of student financial aid the student may expect from federal, state, school, or other sources (including grants, loans, or need-based work programs). The school must consider this available assistance when determining a student's eligibility for a Federal Family Education Loan.

Expected Family Contribution (EFC):   The amount that the student's family is expected to contribute toward the cost of attendance. This amount is usually based on the family's income and assets. The EFC, together with the student's cost of attendance (COA), helps determine the student's need for funds.

Financial Need:  Generally, the difference between the student's cost of attendance (COA) and the Expected Family Contribution (EFC).

Forbearance:  A special agreement under which payments are reduced or temporarily postponed for a defined period while interest continues to accrue. Accrued interest may be paid by the borrower or capitalized at the end of the forbearance.

Free Application for Federal Student Aid (FAFSA):   The application that the student must file to apply for aid from any Student Financial Aid program.

Grace Period:  Period of time after the borrower graduates or leaves school during which the borrower does not need to make principal or interest payments on certain kinds of loans.

Guaranty Agency (Guarantor):  An organization that guarantees Stafford and PLUS Loans for a lender and administers the Federal Family Education Loan Program for a state.

Interest Rate:  The rate charged for borrowing money.

Lender:  The financial institution that provides funds for student loans.

Loan Holder:  The current owner of a borrower's loan. The holder may be the original lender or a secondary market.

Origination Fee:  A fee deducted from the loan amount and paid to the federal government to partially offset the cost of the Federal Family Education Loan Program.

Principal:  The amount of the loan borrowed, which may increase as a result of interest capitalization. This is the amount on which interest is calculated.

Promissory Note:  A legal document that must be signed to obtain a loan. By signing, the borrower promises to repay the loan, with interest, in specified installments.

Secondary Market:  An organization that purchases student loans from the originating lenders. After the sale, the terms of the loan, as set forth in the promissory note, remain the same.

Servicer:  An organization that contracts with lenders or secondary markets to service, administer and collect student loans.

Student Aid Report (SAR):  The federal output document mailed to the student. It contains the family's financial information and other information as reported by the student on the FAFSA.

Subsidized Interest:  Interest which is paid by the federal government on a Subsidized Federal Stafford Loan.

Unsubsidized Interest:  Interest which is paid by the borrower on Unsubsidized Federal Stafford and Federal PLUS loans.