COLLEGE LOAN TERMINOLOGY

American College Testing (ACT):  A need analysis service located in Iowa, responsible for processing the FAFSA form, commonly known as the Free Application for Federal Student Aid.  ACT is also responsible for administering the ACT scholastic exam.

Academic Year (AY):  Officially, a fiscal year runs from July 1 through June 30 and usually consists of either semesters or quarters.

Accrued Interest:  Interest that accumulates on loans and must be paid back at a later date.  

Adjusted Gross Income (AGI):  The income figure taken from the IRS income tax forms and required on the various financial aid applications.

Award Letter:  The official means of notifying financial aid applicants of the assistance being offered.  The award letter shows the types and amounts of aid offered as well as specific program information, student responsibilities, and the conditions that govern the award.  It also provides students with the opportunity to accept or decline the aid offered.

Award Year:  The student receives aid from July 1 through June 30 of the following year.

College Scholarship Service (CSS):  Need analysis service, located in Princeton, NJ, which distributes the Financial Aid PROFILE, a financial aid form used mostly by selective private colleges.  CSS also administers the SAT scholastic exam.

Cost of Attendance:  The total of all costs a financial aid office estimates students will incur during attendance at the college or university.

Default:  When a borrower fails to make payments on a loan, or has failed to comply with other terms of the loan agreement.

Dependent Student:  A student, under the age of 24, who is at least partially dependent on his parents to provide support.  The parents’ income and assets are assessed in determining the expected family contribution.

Deferred:  Contractually suspending the payment of a loan until a later period of time.  However, the interest will accrue (build up) and be added to the total repayment.

Deferment:  A temporary period during which a borrower is not required to make payments.  Deferments are more common in Federal loan programs rather than alternative loans.
For Subsidized Stafford Loan borrowers (and Perkins Loan borrowers), many deferments are subsidized, meaning the interest that accrues on the loan during the deferment is paid by the federal government.  Some deferments are unsubsidized, meaning the borrower must pay the interest that accrues.

Dislocated Worker:  A person who has been laid off from work or who was self-employed (such as a farmer), but is now unemployed because of poor economic conditions in the community or because of a natural disaster.  The dislocated worker status is determined at the discretion of the financial aid officer. 

Entrance Counseling:  An educational session that first time Stafford borrowers must fulfill before the loan's proceeds can be disbursed.  The Exit Counseling session provides these first time borrowers basic information about student loans and the terms and conditions of the Stafford Loan program.

Exit Counseling:  An educational session that Stafford Loan borrowers must fulfill around the time of graduation or separation from a college.  The Exit Counseling session provides the borrower detailed information about the loans he/she borrowed, the company that will collect the payment and the repayment alternatives that are available.

Expected Family Contribution (EFC):  Amount of money a student (and spouse) or family is expected to pay toward college education.  Commonly referred to as the family’s “ability to pay”.
The EFC is calculated when the student submits a financial aid application. (FAFSA)

Federal Direct Student Loan Program (FDSLP):  The program name for loans that are both guaranteed and funded by the federal government.  If your school is a "Direct Lending School", your Stafford Loan is administered by the Federal Direct Student Loan Program (FDSLP). The US government provides funds for “direct loans” directly to students and their parents through their schools. Applications can be obtained from your school.  Banks and guarantee agencies are not involved in the process.

Federal Family Educational Loan Program (FFELP):  Federal college loan program in which the lender and the administrator are a bank, credit union, or other private lender.

Federal Methodology:  Formula developed by Congress and defined by statute, used to assess both the parents’ and student’s income and assets in order to determine the Expected Family Contribution.  Does not consider the home or the family farm as an asset. 

Financial Aid Budget:  The Financial Aid Budget is a breakdown of how the college determines the total cost of attendance.

Financial Aid Profile (PROFILE):  An institutional information form distributed by College Scholarship Service (CSS).  Some colleges may require the PROFILE in addition to the FAFSA to help them determine the financial aid package.

Financial Aid Officer (FAO):  The chief financial administrator at each college responsible for determining financial aid packages.

Financial Aid Package:  The total amount, and type, of aid that a student will receive from one school.  It can consist of a variety of programs including federal and state-funded grants and loans, college based programs, and any additional aid programs the college may make available to the student.

Financial Aid Transcript:  A form used by post-secondary institutions to collect data about a student’s prior attendance at other post-secondary institutions, financial aid awards that the student received at the institution providing the transcript, and the status of certain eligibility criteria involving default and repayments owed.  All transfer students applying for aid must have this form submitted by the school they attended.

Financial Need:   The difference between a student's Cost of Attendance and Expected Family Contribution. It is the amount of financial aid the student "needs" to afford attendance at a particular college.

Free Application for Federal Student Aid (FAFSA):  The only financial aid form used to calculate the Expected Family Contribution (EFC), which is used to determine the amount of federal and state funds the student is eligible to receive.

Full-Time:  A student that is enrolled for at least 12 credit hours during a quarter or semester.

Guaranteed Student Loan (GSL):  Now known as the Stafford Loan.

Grace Period:  The length of time that begins when a loan recipient graduates or ceases to be enrolled on at least a half-time basis and ends when the repayment period starts, or, in some loan programs, the period of time when a deferment ends and loan payment is scheduled to resume.  Loan principal need not be paid and interest does not accrue during this period.

Graduate and Professional School Financial Aid Service (GAPSFAS):  A need analysis service dealing strictly with the graduate or professional student.

Guaranty Agency:  A state or private institution or organization, which administers student loan, insurance, or governmental guarantor programs for the federal government.

Half-Time:  A student that is enrolled for at least 6 credit hours during a quarter or semester.

Independent Student:  A student NOT  dependent upon his parents for support, and fits one of the following profiles exactly:  1. is at least 24 years of age by December 31st of their upcoming college academic year.  2. has a legal dependent, other than a spouse.  3. is a ward of the court or both parents are deceased.  4.  is a veteran of the U.S. Armed Forces.  5. is married.  6. is a graduate or professional student.  7. is judged independent by the Financial Aid Officer due to unusual circumstances.

Institutional Methodology:  An alternative method of needs analysis, used mostly by private colleges, to take a more detailed look at the family’s income and assets, prior to disbursing their own grants and scholarships.  Considers the home and the family farm as an asset. 

Loans:  Funds that the student (or other party like a parent, for example) borrow from a lender, the school or other third party. Loans must be repaid by the borrower according to the terms of a promissory note, usually with interest.  In some instances loans can be a form of financial aid.

Loan Servicer:  Once a loan has been approved and disbursed by the lender or the guarantee agency, it is usually transferred to a servicing company.  This is a company that is responsible for managing your account while you are in school and during repayment.  You will repay the servicing company until the loan is paid in full.  Any questions or repayment issues should be addressed to the servicing company.  However, if you are having problems with the servicer, you should contact your lender for additional assistance.

Need-based Aid:  Financial aid that is awarded solely on the financial need of the student and his family.

Origination Fee:  A fee the borrower pays to the lender for originating a student loan. It is charged to the student and deducted from the loan proceeds prior to disbursing the balance to the college. Origination fees are most often associated with Federal Stafford, PLUS and Federal Direct Student loans. The maximum origination fee for a Stafford loan for 2006-2007 is 2% of the loan’s principal balance. The maximum origination fee for a PLUS loan for 2006-2007 is 3% of the loan’s principal balance.

Perkins Loan:  The Federal Perkins Loan is in the student’s name and is the responsibility of the student. The loan is a need-based loan in which the Federal government pays the interest on the loan until nine months after the student leaves college. The interest rate is fixed at 5%. Payments on this loan start nine months after the student has left school and payments can be deferred for students going back to school or in certain hardship cases. The amount of the loan is determined by the college and ranges up to $4,000 per year.

PLUS Loan:  The Federal Parent Loan for Undergraduate Students (PLUS) is in one parent’s name. The program does require the borrower to pass a simple credit check. If one parent does not qualify for the loan then the other parent can apply for the loan. The loan is neither need-based nor merit-based. For loans disbursed prior to July 1, 2006, the interest rate is variable and adjusted once a year on July 1. The interest rate for 2006-2007 on these loans is 7.94%. The interest rate is capped at 9%. Loans disbursed after June 30, 2006, under the Federal Family Education Loan Program have a fixed interest rate of 8.5%; loans disbursed under the William D. Ford Federal Direct Loan Program have a fixed interest rate of 7.9%. Payments on this loan start within 60 days of the final disbursement of the loan. The amount that can be borrowed in any one year is the total cost of college less any financial aid and distributions from certain educational tax benefit accounts.

Private Loans:  Private Loans offered by financial institutions and brokers can be in the student’s name and/or in the parents’ names, depending on the individual loan. These loans are not need-based or merit-based loans. The interest rates on these loans are usually variable with no cap on the rate. The rates are based on Prime or LIBOR Index plus a percentage and may be adjusted quarterly. Loans in the student’s name start repayment after the student leaves school while loans in the parent’s name usually have repayment terms that start soon after the loan has been made. Loan amounts can be up to the total cost of college less any financial aid.

Self-help:  Aid that must be repaid either through financial obligation or service to the university or the state (i.e. loans, work-study).

Stafford Loan - Subsidized:  The Federal Subsidized Stafford Loan is in the student’s name and is the responsibility of the student. The Subsidized Stafford Loan is a need-based loan in which the Federal government pays the interest on the loan until six months after the student leaves college. For loans disbursed prior to July 1, 2006, the interest rate is variable and is adjusted once a year on July 1. The interest rate for 2006-2007 on these loans is 6.54%. The interest rate is capped at 8.25%. Loans disbursed after June 30, 2006, have a fixed interest rate of 6.8% for a student out of school. Payments on this loan start six months after the student has left school. Payments can be deferred for students going back to school or in certain hardship cases.

Stafford Loan - Unsubsidized:  The Federal Unsubsidized Stafford Loan is in the student’s name and is the responsibility of the student. The Unsubsidized Stafford Loan is not a need-based loan and interest starts to accrue on the loan immediately.  Most lenders waive interest payments while the student is in school and add this interest to the principal of the loan (Interest Capitalization). For loans disbursed prior to July 1, 2006, the interest rate is variable, adjusted once a year on July 1, and is capped at 8.25%. The present interest rate on these loans for 2006-2007 is 6.54% while the student is in college and 7.14% for a student out of school. Loans disbursed after June 30, 2006, have a fixed interest rate of 6.8%. Payments on this loan start six months after the student has left school. Payments can be deferred for students going back to school or in certain hardship cases.