Private Student Loans Guru

Student Loan Glossary

APR: The APR or Annual Percentage Rate is an annualized interest rate that combines the effects of a loan's fees, compound interest and repayment term, as specified by Reg Z and the Truth in Lending Act (TILA).
Adverse Credit History: A borrower has an adverse credit history if the borrower has a current delinquency of 90 or more days on debts totaling more than $2,085, the borrower had more than $2,085 in debt in collections or charged-off in the last two years, or if the borrower had a bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, default determination or a write-off of federal student loan debt in the last five years. Borrowers who have an adverse credit history are ineligible for a Federal PLUS loan unless the borrower documents errors in the credit report that lead to the adverse credit history determination, the borrower documents extenuating circumstances, or an endorser who does not have an adverse credit history cosigns the loan.
Aggregate Loan Limit: An aggregate loan limit is the maximum total amount that may be borrowed overall under a loan program.
Alternative Student Loans: See Private Student Loans.
Amortization: Loan amortization spreads the payments on a loan over a series of regular payment periods. Level amortization is a type of loan amortization in which all of the payments are the same amount.
Annual Loan Limit: An annual loan limit is the maximum total amount that may be borrowed per year under a loan program.
Bankruptcy: Bankruptcy discharge provides borrowers with a clean slate by cancelling all of the borrower's debts. The borrower's assets, with some exceptions, may be liquidated and distributed to the borrower's creditors. Federal and private student loans are subject to an exception to discharge, which prevents bankruptcy discharge unless repaying the student loans would represent an "undue hardship" on the borrower and the borrower's dependents. This is a very harsh standard which makes it almost impossible for a borrower's student loans to be discharged.
Cancellation: Loan cancellation occurs when the obligation to repay a debt is permanently ended. Loan discharge and loan forgiveness are two types of loan cancellation.
Capitalization: Accrued but unpaid interest on a loan is capitalized by adding it to the loan balance. After the interest is capitalized, interest may be charged on the entire loan balance, including the capitalized interest.
Cohort Default Rate: The cohort default rate is the percentage of borrowers entering repayment one federal fiscal year who default by the end of a subsequent federal fiscal year. For example, the 3-year cohort default rate is the percentage of borrowers entering repayment one federal fiscal year who default by the second following federal fiscal year. If the cohort default rate is greater than 40% in any single year or 30% in three consecutive years, the college can lose eligibility for federal student aid. Colleges with very low cohort default rates can qualify for waivers of certain federal requirements, such as the multiple disbursement rule and the 30-day delay in federal student loan disbursements for first-time borrowers.
Collection Costs: Collection costs are the costs a lender incurs in trying to collect a defaulted loan.
Consolidation: Loan consolidation is a form of loan refinance in which multiple loans are combined into a single loan. The consolidation loan pays off the loan balances of the loans that are included in the consolidation.
Cosigner: A cosigner is a co-borrower, equally obligated to repay the cosigned debt. The lender may seek repayment from either the borrower or the cosigner, or both. Repayment behavior is reported on the credit histories of both borrower and cosigner.
Cosigner Release: If the primary borrower makes a specified number of consecutive, on-time loan payments and satisfies the lender's credit criteria, some lenders will release the cosigner from his or her obligation to repay the cosigned debt.
Cost of Attendance: A college's cost of attendance (COA) includes tuition and fees, room and board, books, supplies and equipment, transportation and miscellaneous/personal expenses. The cost of attendance may also include the cost of a computer, health insurance and dependent care costs.
Credit Bureau: A credit bureau maintains a borrower's credit history, which is a set of records concerning the borrower's debts and progress in repaying the debts. The borrower's overall performance in managing his or her loans is summarized in a credit score, which predicts the likelihood that the borrower will repay a new loan.
Credit History: A credit history is a set of records concerning the borrower's debts and progress in repaying the debts. It tracks whether payments were made on time, as well as delinquencies and loan defaults.
Credit Reporting Agency: See Credit Bureau.
Credit Score: A credit score is a numeric measure of the likelihood that a borrower will repay new loans. The FICO credit score is measured on a scale from 300 to 850. A borrower with a higher credit score is a lower credit risk. Borrowers with credit scores under 650 are considered sub-prime.
Cumulative Loan Limit: A cumulative loan limit is the same as an aggregate loan limit.
Default: A loan is considered to be in default when it is delinquent for a period of time, typically 120 days for a private student loan and 360 days for a federal student loan. Loans that are in default are due in full, immediately, and may be referred to a collection agency, which may use a variety of methods to collect the loan, including wage garnishment, interception of federal and state income tax refunds, garnishment of Social Security benefit payments, liens and bank levies. Collection charges may be deducted from loan payments or added to the loan balance.
Default Fee: A default fee or guarantee fee is a fee charged to insure the loan against default.
Default Rate: See Cohort Default Rate.
Deferment: A deferment is a temporary suspension of the obligation to repay a debt. Interest may continue to accrue during a deferment, and may be capitalized if it is remains unpaid.
Delinquent: A loan is delinquent when the borrower has not made a payment for a period of time, typically at least 30 days late. If a borrower has not made a payment for 90 or more days, the borrower is said to have a serious delinquency.
Disbursement: Disbursement is the crediting of a student's account with student aid funds. The funds in the student's account are first applied to institutional charges for tuition, fees, room and board. If a credit balance remains, it is refunded to the student for other costs, such as the purchase of textbooks.
Discharge: A discharge is a type of loan cancellation, typically because of the borrower's inability to repay the debt, such as due to the borrower's death, disability or bankruptcy. A loan may also be discharged because the borrower repudiates the debt by providing evidence of fraud or identity theft.
Endorser: An endorser is a cosigner on a Federal PLUS loan.
Fixed Interest Rate: A fixed interest rate is an interest rate that does not change during the life of the loan.
Forbearance: A forbearance is a temporary suspension of the obligation to repay a debt. Interest continues to accrue during a forbearance and will be capitalized if it remains unpaid. A partial forbearance reduces the monthly payments to interest-only.
Forgiveness: Forgiveness is the cancellation of a debt in exchange for the borrower working in a particular occupation for a period of time, such as public service loan forgiveness.
Garnishment: Garnishment occurs when a borrower's employer is required by law or by court order to send a portion of the borrower's wages to the lender to repay the borrower's debt. For example, the federal government can garnish up to 15% of a borrower's wages to repay defaulted federal education loans through administrative wage garnishment.
Grace Period: The grace period on a student loan is a period that starts when the borrower graduates or drops below half-time enrollment and ends when the loan enters repayment. The grace period on Federal Stafford loans and most private student loans is 6 months.
Guarantee Fee: A guarantee fee or default fee insures a loan against default.
Hard Inquiry: A hard inquiry to a borrower's credit history occurs when a creditor obtains a copy of the borrower's credit history because the borrower has applied for a loan or an increase in a credit limit. Only hard inquiries can affect a borrower's credit score, typically by no more than 5 points. Multiple loan applications that occur when a consumer is shopping around for a better interest rate, typically within a 45-day period, are treated as a single hard inquiry. A hard inquiry will remain on the borrower's credit history for up to two years.
In-School Period: The in-school period on a student loan is a period during which the student maintains continuous enrollment on at least a half-time basis.
Index Rate: An index rate is a variable interest rate that serves as a standardized reference interest rate. Examples include the LIBOR index, the prime lending rate and the 10-year Treasury.
Interest: Interest is a fee charged periodically as a percentage of the balance of a loan.
Late Fee: When a borrower fails to make a payment by the due date, a late fee of up to 6% of the late payment may be charged. Most student loans provide a grace period of 15 or 20 days after the due date before the payment will be reported as delinquent and before a late fee will be charged.
LIBOR: The London Interbank Offered Rate (LIBOR) is the interest rate that banks charge each other for overnight loans.
Lender: A lender is a bank, non-bank financial institution, state agency or other organization that makes and services loans to borrowers.
Levy: A bank levy allows a creditor to seize funds from a bank account to repay a loan. Bank levies may also be used to pay unpaid taxes.
Lien: A lien prevents the sale of a piece of property, such as real estate, until a debt owed by the property owner has been satisfied.
Loan: A loan is money borrowed. The borrower agrees to repay the loan, usually with interest, over a number of years.
Loan Limit: A loan limit is the maximum amount of money that can be borrowed through a loan.
Loan Term: The loan term is the duration of the repayment period of a loan, typically expressed as a number of years (e.g., 10 years, 25 years).
Master Promissory Note (MPN): A Master Promissory Note (MPN) is a promissory note in which the borrower of a loan agrees to repay the debt. Instead of signing a new promissory note each year, the Master Promissory Note covers a period of continuous enrollment of up to 10 years.
Negative Amortization: Negative amortization occurs when the scheduled payment on a loan is less than the new interest that accrues.
Prepay: A borrower may prepay a loan by making an extra payment to fully or partially pay down the loan balance.
Prepayment Penalty: A prepayment penalty is a fee that is charged when a borrower prepays a loan. Federal and private student loans do not have prepayment penalties.
Prime Lending Rate: The prime lending rate is an index rate based on the interest rate that banks charge their best credit customers.
Principal Balance: The principal balance of a loan is the amount owed on the loan. Interest is charged based on the loan balance.
Private Student Loan: A private student loan is a non-federal education loan. Private student loans include loans made by banks, non-bank financial institutions, state loan programs and college and university institutional loan programs. The three main types of private education loans include private student loans, private parent loans and private consolidation loans.
Promissory Note: A promissory note is a legal agreement in which a borrower agrees to repay a debt.
Refinance: A loan is refinanced when the proceeds of a new loan are used to pay off the original loan. The new loan may have different terms than the original loan.
Rehabilitation: Loan rehabilitation occurs when a borrower makes a number of voluntary, full, on-time monthly payments on a defaulted student loan. Loan rehabilitation is a one-time opportunity to remove the default status from a loan and to regain eligibility for federal student aid.
Repayment Plan: A repayment plan specifies the amount of the payments on a loan. Repayment plans may include level amortization, such as standard repayment and extended repayment, graduated repayment and income-driven repayment.
Repayment Schedule: A repayment schedule specifies the amount of a series of periodic loan payments according to a repayment plan.
Repayment Term: The repayment term of a loan is the period of time during which the borrower must repay the debt.
Serious Delinquency: A serious delinquency is a delinquency of 90 or more days.
Servicer: A servicer is a company that collects payments and administers a loan on behalf of a lender.
Soft Inquiry: A soft inquiry to a borrower's credit history occurs when someone obtains a copy of the borrower's credit history, but the borrower has not applied for a loan or an increase in a credit limit. This can occur when the borrower's credit history is reviewed for promotional purposes (e.g., to offer the borrower a pre-approved credit card), for identify verification purposes and for employer background checks. It can also occur when a current credit conducts a periodic review of the borrower's credit history or when the borrower obtains a copy of his or her own credit history. Soft inquiries do not affect the borrower's credit scores.
Subsidized Loan: The federal government pays the interest on a subsidized loan during the in-school period, grace period, economic hardship deferment and other periods of authorized deferment.
Total and Permanent Disability: A borrower with a total and permanent disability may qualify to have his or her federal student loans discharged.
Tuition Installment Plan: A tuition installment plan or tuition payment plan breaks up a college bill into equal monthly installments over the course of a few months to a year. No interest is charged on a tuition installment plan, but there may be a small up-front fee.
Undue Hardship: Congress did not define the term "undue hardship" in the U.S. Bankruptcy Code, so the courts have had to adopt their own definitions. The most common definition is the Brunner test, which requires the borrower to be presently unable to repay the debt and maintain a minimal standard of living for the borrower and the borrower's dependents, these circumstances must be expected to persist for most of the repayment term of the loan, and the borrower must have made a good faith effort to repay the debt, such as by trying the accommodations offered by the lender.
Unsubsidized Loan: Unlike a subsidized loan, the federal government does not pay the interest on an unsubsidized loan during deferment periods.
Variable Interest Rate: A variable interest rate is an interest rate that changes periodically. Often, a variable interest rate is pegged to a variable index rate, plus a fixed margin.
Wage Garnishment: Wage garnishment occurs when an employer is ordered to divert a portion of an employee's wages to a third party, usually to repay a debt or other obligation.