Student Loan Glossary of Terms
If you plan on borrowing with
federal,
state,
or private student loans, take time to learn the special vocabulary of lenders.
Accrued Interest: Daily interest calculated on a loan's unpaid
principal balance. Accrued interest is paid along with your principal balance each
time you make a loan payment. The daily interest rate is specified in the promissory
note.
APR: Annual Percentage Rate. It is used to determine the amount
you will pay in interest during a year.
Capitalized Interest: Daily interest that is calculated on a loan's
unpaid principal balance at the rate specified in the promissory note. Unlike accrued
interest, capitalized interest is added to the principal loan amount and paid at
a later time.
Loan Consolidation: Combining some student loans into a single,
larger loan. If you choose to extend the repayment terms of your consolidated loan,
the lifetime cost of the loan will be higher, but the short-term monthly payments
will be lower. The interest rate on a consolidated loan is the weighted average
of the interest rates on the loans being consolidated.
Default: Failure to meet a financial obligation. A loan is in default
when the borrower fails to make payments or meet other loan terms outlined in the
promissory note.
Deferment: A temporary postponement of loan payments. Borrowers
can request a deferment if they are temporarily unable to make payments on their
loan. If the loan is subsidized, the federal government pays the interest during
a deferment. If unsubsidized, the borrower is responsible for paying accrued interest.
Deferment terms are outlined in the promissory note.
Forbearance: A temporary postponement of loan payments. Borrowers
can request a forbearance if they are temporarily unable to make payments on their
loan. Unlike deferments, forbearance always requires the borrower to pay the accrued
interest. Forbearance terms are outlined in the promissory note.
Fixed Interest: An interest rate that does not change during a
loan's term.
Grace Period: The time borrowers have before they are required
to start making payments on a loan. Depending on the loan type, it is typically
the six to nine months after a student graduates or leaves college.
Interest Rate: The fee charged by the lender and paid by the borrower
for use of the money loaned. It is calculated as a percentage of the principal amount
borrowed. Interest rates are outlined in the promissory note.
Principal: The amount of money borrowed.
Promissory Note or Master Promissory Note: The binding contract
between a borrower and a lender that outlines the terms and conditions of a loan.
Variable Interest: An interest rate that changes during the life
of the loan, based on market conditions.