glossary of education loan terms
Accrued Interest
Interest that has accumulated on your principal balance.
Amortization
Gradual reduction of a loan debt by periodic installment payments (usually monthly) of interest and principal.
APR
Annual Percentage Rate; the cost of credit at a yearly rate including interest and fees. The APR is different from the interest rate described in the private loan promissory note. APR’s are used to express the total cost of borrowing money so that consumers can compare loans from various lenders. They are not used for FFELP loans.
Borrower
A student loan borrower can be a student or parent; borrowers sign a promissory note and agree to repay, in full, a federal or private loan. Borrowers are legally responsible for repayment of their loan(s).
Borrower Benefit
Program offered by lenders to help reduce the cost of borrowing.
Learn more about VSAC’s borrower benefits.
Cancellation
Forgiveness of all or part of the loan due to specific circumstances.
Capitalized Interest
Unpaid accrued interest that is added to the principal balance of the loan (usually after deferment or forbearance).
Certification
The act of attesting that something is true or meets a certain standard. For example, the school certifies the borrower's eligibility for a loan and, if applicable, interest benefits. The borrower completes an application, promissory note, or deferment form, thereby certifying that certain eligibility criteria have been met.
Consolidation
Loan consolidation is a federal program that may allow borrowers to: combine multiple federal education loans into a single loan; lower their payment amount by extending their repayment period; lock in their interest rate; simplify repayment by allowing them to choose a single lender. Borrowers do not need to have multiple federal loans to qualify.
Learn more about consolidation.
Cosigner
A cosigner has the same responsibilities for repayment of the loan as the student; the cosigner is equally liable for the debt. Obtaining a cosigner is optional for private loan borrowers that meet VSAC’s credit criteria; it is required for private loan borrowers that do not meet our credit criteria.
Learn more about cosigners.
Cosigner Release
The ability to release a cosigner from his/her private loan obligation.
Learn more about VSAC's cosigner release policy.
Credit Agreement
A legally binding contract in which a financial institution agrees to loan money. The borrower promises to repay the loan, with interest, in periodic installments. The credit agreement contains all the terms and conditions of the loan as well as the customer’s rights and responsibilities with respect to the loan.
Credit Pre-Approval
Preliminary credit approval based on a review of your credit report and/or your cosigner’s/endorser’s credit report. Final loan approval is contingent upon receipt of a completed application/promissory note and an eligible school certification of eligibility for the loan, if applicable.
Credit Criteria
Criteria which must be met, through a review of your credit report, in order to qualify for a loan.
Default
Default occurs when a loan is not paid back as promised (according to the terms and conditions of the promissory note). Upon default, loans are filed with a guaranty agency, a collection agency, or the federal government for collection. The loan balance is due, in full, at the time of default.
Deferment
Entitlement to postpone payments when the borrower meets specific eligibility requirements set by the US Department of Education.
Delinquent
When the borrower does not make a payment on time. Late payments are reported to credit bureaus monthly.
Disclosure Statement
Fact sheet sent to the borrower when the loan is borrowed or at the beginning of repayment that shows the repayment terms of the loan.
Electronic Payment
Loan payments are deducted automatically from the borrower’s bank account.
Endorser
An endorser is responsible for repayment of a loan if the primary borrower does not pay as agreed; the endorser is secondarily liable for the debt. Individuals borrowing Federal PLUS loans may be required to obtain an endorser.
Learn more about endorsers.
FAFSA (Free Application For Federal Student Aid)
The form the student must complete to apply for federal Title IV financial assistance, including Stafford loans. The student must include financial information on the student's household so that the expected family contribution can be calculated.
FAFSA e-PIN
An electronic signature that can be used by the borrower when completing a FAFSA application online.
Federal Family Education Loan Program (FFELP)
Student loan programs authorized by Title IV, part B of the Higher Education Act of 1965. FFELP loans include the federal Stafford, federal PLUS, federal SLS, and federal Consolidation loan programs. These loan programs are funded by lenders, guaranteed by guarantors, and reinsured by the federal government.
Learn more about VSAC loans.
Fixed Interest Rate
Remains the same over the life of the loan.
Forbearance
A period of time during which the borrower is permitted to temporarily cease making payments or reduce the amount of the payments. The borrower is liable for the interest that accrues on the loan during the forbearance period. Some forbearances are entitlements for eligible borrowers; others are granted at the discretion of the lender.
Grace Period
A grace period is a period of time during which no payments are due; all federal Stafford loans have a one-time six-month grace period. VSAC also offers grace periods on most of our private loans; most are six months in length. Grace periods begin when the student borrower drops to less than half-time enrollment.
Graduated Repayment
Payments start low and increase over time.
Guaranty Agency
State or private nonprofit organization that coordinates the Federal Family Education Loan Program for students, schools, and lenders, and administers the FFELP insurance program.
Holder
Lender or secondary market that owns the promissory note. May be guaranty agency or US Department of Education in case of defaulted loan.
Incentive
An incentive is a borrower benefit program offered by lenders to help reduce the cost of borrowing.
Learn more about VSAC’s borrower benefits.
Income-sensitive Repayment
Payment amount based on the borrower’s income and amount of education loan debt.
Installment
An installment is a periodic, required payment. Federal and private student loan lenders generally require that borrowers make payments once a month.
Interest Rate/Finance Charge
The interest rate determines how much the borrower is charged in interest as they repay their loan. The finance charge reflects how much interest, in total, is paid over the life of the loan. Federal loan interest rates are set by the government. Private loan interest rates are set by banks/lenders.
Interest Rate Reduction
Interest rate reductions, often referred to as borrower benefits, reduce the cost of borrowing by lowering the borrower’s interest rate. Interest rate reductions are offered at the discretion of the lender; most lenders require that you meet certain qualifying criteria. VSAC offers an interest rate reduction to qualifying borrowers through our borrower benefits program.
Learn more about VSAC’s borrower benefits.
Interest Rebate
Interest rebates reduce the cost of borrowing by applying a rebate to the borrower’s outstanding principal balance(s). VSAC provides annual interest rebates on qualifying federal loans made prior to 7/1/08 and qualifying private loans made prior to 5/19/08.
Learn more about VSAC’s borrower benefits.
LIBOR
London Inter-Bank Offered Rate; the rate at which banks borrow funds from other banks in the London interbank market. It is also a standard short term financial index used for determining interest rates on variable rate loans. This index is used by VSAC in determining the interest rate charged for private loans. VSAC uses the average of Three Month LIBOR rates, published on the first business day of each month of the preceding quarter, plus a margin to determine interest rates.
Lender
A lender is a bank or student loan company that lends money to students and parents. VSAC is a lender; we offer both federal and private loans to Vermont students and parents, as well as to out-of-state students (and their parents) that are attending Vermont schools.
Learn more about VSAC loans.
Loan Agreement
A loan agreement is either a promissory note or a credit agreement.
National Credit Bureau
Records financial information about the borrower for use by potential creditors. Education loan information is reported to national credit bureaus monthly.
No-Fee Loan
A loan for which the lender and/or guarantor does not charge the borrower any fees.
Learn more about VSAC’s borrower benefits.
On-time Payment
An on-time payment is a payment that is made within a required timeframe, as established by the lender.
Perkins Loan
Low interest loan for students. Administered by the school; it is not part of the FFELP program.
PLUS Loan
There are two types of PLUS loans: PLUS loans for parents of dependent students and PLUS loans for undergraduate/professional students. The PLUS loan is a federal loan program; the student must be enrolled at least half-time, in an eligible program, for the borrower to qualify. A review of the borrower’s credit history is also required.
Learn more about VSAC PLUS loans.
Principal Balance
Amount of money still owed on the loan, not including accrued interest or future interest.
Private Education Loan
Student loan programs independently financed and administered by lenders (they are also sometimes referred to as alternative or supplemental loans). Private loans are generally intended to supplement school, grant, scholarship, federal loan, and other available aid. VSAC offers numerous private loans.
Learn more about VSAC's private loans.
Promissory Note
A legally binding contract in which a financial institution agrees to loan money. The borrower promises to repay the loan, with interest, in periodic installments. The promissory note contains all the terms and conditions of the loan as well as the customer’s rights and responsibilities with respect to the loan.
Repayment Period
The repayment period is the period during which the borrower must make regular payments of principal and interest. Federal loans must generally be paid in full within ten years; some private loans, as well as Consolidation loans, allow additional years to repay. The repayment period begins either immediately following the final disbursement of the loan funds or following the loan’s grace period, whichever is applicable. (Stafford loans and most VSAC private loans have a grace period; grace periods are generally six or nine months in length and occur after the student drops to less than half-time enrollment).
Secondary Market
State or private agency that purchases the loan from the original lender. This provides money for the lender to make more education loans.
Servicer
State or private agency that processes the borrower’s payments, forbearances, and deferments, answers the borrower’s questions, and helps the borrower find options to help with repayment.
Spousal Consolidation
Prior to 7/1/06, married spouses were able to combine their federal education loans into a single Consolidation loan. Both spouses were equally liable for the debt. Spousal consolidation is no longer available due to a change in federal regulations.
Subsidized Stafford Loan
Low interest loan for students enrolled at least half-time in an eligible program. The federal government pays the interest while the borrower is in school, for six months after the borrower leaves school, and during deferment periods.
Learn more about VSAC's Stafford Loans.
Term
Number of months the borrower has to pay back the loan, not including months of deferment or forbearance.
Unsubsidized Stafford Loan
Low interest loan for students enrolled at least half-time in an eligible program. The borrower owes interest as soon as the loan is made.
Learn more about VSAC's Stafford Loans.
U.S. Dept. of Education
The agency that makes rules for education loans based on laws enacted by Congress.
Variable Interest Rate
The interest rate changes periodically.
Weighted Average Interest Rate
Calculated based on the loan balance and the interest rate of each of the loans included in a Consolidation loan. For example, the higher the loan balance the more “weight” the interest rate for that loan will have when determining the new combined (weighted average) interest rate.
