glossary of education loan terms
Interest that has accumulated on a borrower's principal balance.
Gradual reduction of a loan debt through regular installment payments (usually monthly) of interest and principal.
"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 credit agreements. APRs are used to express the total cost of borrowing money so that consumers can compare loans from various lenders. APRs typically are not used for loans that are part of the Federal Family Education Loan Program (FFELP).
An arrangement in which the borrower authorizes monthly loan payments to be deducted automatically from his or her bank account (usually a checking account) on a given date each month.
For education loans, either a student or a parent who signs a promissory note and agrees to repay, in full, his or her federal or private loans. Borrowers are legally responsible for repayment of their loan(s).
A special reduction that lenders offer in order to help lower the cost of borrowing.
Forgiveness of all or part of the loan, due to specific circumstances.
Unpaid accrued interest that is added to the principal balance of a loan (usually after deferment or forbearance).
The act of attesting that something is true or meets certain conditions. For example, a school certifies the borrower's eligibility for a loan. The borrower completes an application, promissory note, or deferment form, thereby certifying that certain eligibility criteria have been met.
An individual who has the same responsibilities for repayment of a loan as the student borrower has; a cosigner is equally liable for the debt.
The ability to relieve a cosigner of his or her private loan obligation after specific criteria set by the lender is met.
A legally binding contract in which a financial institution agrees to lend money. The borrower promises to repay the loan, with interest, in regular installments (usually monthly). 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.
An agency that gathers and stores credit information on a consumer's creditworthiness. If a credit report is needed for a loan application, a credit bureau produces a report based on the gathered data. If the application is accepted and a loan is disbursed, the lender also reports back to credit bureaus the amount an individual borrowed and whether the individual makes payments on time.
Preliminary approval of a borrower's creditworthiness, based on a review of a borrower's credit report and/or a cosigner's or endorser's credit report. Final loan approval is contingent upon receipt of a completed credit agreement/promissory note and an eligible school certification of eligibility for the loan, if applicable.
Stipulations or conditions that must be met, through a review of a borrower's credit report, in order to qualify for a loan.
The status that results when a loan is not paid back as promised, according to the terms and conditions of the credit agreement/promissory note. Upon default, loans are submitted to a guaranty agency, a collection agency, or the federal government for collection. The loan balance is due, in full, at the time of default.
Entitlement to postpone payments when the borrower meets specific eligibility requirements set by the U.S. Department of Education.
The status of a borrower who does not make a payment on time. Late payments are reported to credit bureaus on a monthly basis.
The release of loan funds (typically to a school) for delivery to the borrower. Disbursements are usually made in equal multiple installments, co-payable to the borrower and the school.
Automatic deductions, authorized by a borrower, from his or her bank account; or remittances transmitted from a lender to a school.
The individual 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 if the primary borrower does not meet the lender's credit criteria.
The form a student must complete in order to apply for federal Title IV financial assistance, including Stafford loans. The student must include financial information on his or her household so that the expected family contribution can be calculated.
An electronic signature that can be used by the borrower when completing an online FAFSA application.
The student loan program 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 loans. These loans are funded by lenders, guaranteed by guarantors, and reinsured by the federal government.
A rate that remains the same over the life of the loan.
A period of time during which the borrower is permitted temporarily to cease making payments or reduce the amount of the payments. The borrower is liable for the interest that accrues on the loan during forbearance. Some forbearances are entitlements for eligible borrowers; others are granted solely at the discretion of the lender.
The time during which no payments are due. The grace period begins when a student borrower drops to less than half-time enrollment. All federal Stafford loans have a one-time, six-month grace period. VSAC also offers grace periods (usually six months) on most of its private loans.
An arrangement in which payments begin at a lower amount and increase over time. This is a costly option over the life of the loan, as principal is reduced more slowly than with level repayment.
A state or private nonprofit organization that coordinates FFELP loans for students, schools, and lenders, in addition to overseeing the administration of the FFELP insurance program.
The lender or secondary market that owns a loan's promissory note. For defaulted loans, the holder may be a guaranty agency or the U.S. Department of Education.
A borrower benefit offered by some lenders to help reduce the cost of borrowing.
One of several long-term repayment plan options for borrowers of federal education loans; your monthly loan payments are limited to a percentage of your annual income (includes spouse’s income, if applicable). Monthly payments are adjusted annually based on changes in income and family size.
An arrangement in which a payment amount is based on a borrower's income and amount of education loan debt.
A required payment made on a regular periodic schedule. Federal and private student loan lenders generally require that borrowers make payments once a month.
The fee a borrower pays for the use of money they borrow.
The figure that determines how much a borrower is charged in interest as he or she repays a loan. The finance charge reflects how much interest, in total, will be paid over the life of the loan. Federal loan interest rates are set by the government. Private loan interest rates are set by banks or other lenders.
Often referred to as a borrower benefit, this incentive reduces the cost of a loan by lowering the interest rate. Interest rate reductions are offered at the discretion of the lender; most lenders require that borrowers meet certain qualifying criteria.
A return of part of the interest payment; this is a way of reducing 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 July 1, 2008, and qualifying private loans made prior to May 19, 2008.
The London InterBank Offered 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 for its private loans.
A bank or student-loan company that lends money to students and parents.
A type of financial aid available to students and their parents. Student loan programs have varying interest rates and repayment provisions. Education loans must be repaid.
Either a promissory note or a credit agreement.
The written agreement that a student or parent borrower must sign when taking out a Stafford loan, a Parent PLUS loan, or a Grad PLUS loan. A student borrower may obtain both subsidized and unsubsidized Stafford loans for the same enrollment period under a single Stafford Master Promissory Note.
A payment made within a required timeframe established by the lender.
A fee charged and deducted from the proceeds of a loan before the loan is disbursed. For federal loans, the origination fee is paid to the federal government to offset the cost of interest subsidy to borrowers. For private loans, the origination fee is generally paid to the originator to cover the cost of administrating and insuring the program.
VSAC's electronic bill statements that are viewable online via a customer's myVSAC/Account Access. We encourage borrowers to choose this method of account management instead of receiving monthly bill statements in the mail.
A low-interest loan for students with exceptional financial need. Administered by the school, these loans are not part of FFELP.
Originally the Parent Loan for Undergraduate Students. Today there are two types of PLUS loans: the original PLUS loan for parents of dependent students and the PLUS loan for undergraduate/professional students. The PLUS loan is a federal loan; for a borrower to qualify, a student must be enrolled at least half time in an eligible program. A review of the borrower's credit history is also required.
The amount of money still owed on a loan, not including accrued interest or future interest.
(also known as an alternative or supplemental loan) - A student loan that is independently financed and administrated by a lender. A private loan is often used to bridge the gap between total education costs and the limited financial aid a student may receive in grants, scholarships, or federal loans.
An individual that VSAC will contact if we do not have a valid address or phone number for a borrower. Lenders generally will ask their borrowers to provide the names, phone numbers, and addresses of at least two individuals to be used as references for the borrower.
A fact sheet that shows the repayment terms of a loan. It is typically sent to a borrower when the loan is taken out and/or at the beginning of repayment.
The span of time during which a borrower must make regular payments of principal and interest. Federal loans generally must be paid in full within ten years; some private loans, as well as consolidation loans, allow additional years to repay, based on specific conditions. 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 grace periods of generally six or nine months and occur after the student drops to less than half-time enrollment).
The state or private agency that purchases a loan from its original lender. This provides money for the lender to make more education loans.
A state or private agency that processes a borrower's payments, forbearances, and deferments; answers the borrower's questions; and helps the borrower find options to help with repayment.
A process through which married couples were allowed to combine their federal education loans into a single loan. Prior to July 1, 2006, married spouses were able to consolidate their federal education loans into a single loan. Both spouses were equally liable for the debt. Spousal consolidation is no longer available due to a change in federal regulations.
A low-interest loan for students enrolled at least half time in an eligible program. The federal government pays the interest while the borrower is enrolled in school at least half time, for six months after the borrower drops to less than half-time enrollment, and during deferment periods.
The number of months a borrower has in which to pay back his or her loan. The term does not include months of deferment or forbearance.
A low-interest loan for students enrolled at least half time in an eligible program. The borrower begins to accrue interest as soon as the loan is disbursed.
The agency that makes rules for education loans, based on laws enacted by Congress.
An interest rate that changes periodically in response to market conditions.
A rate that is calculated based on the loan balance and the interest rate of each of the loans included in a consolidation loan. The higher the loan balance is, the more "weight" the interest rate for that loan will have when determining the new combined (weighted average) interest rate.