borrower |
Person legally responsible for repaying a loan and who has signed the promissory note. |
cancellation |
The release of borrowers from their obligations to repay all or a portion of their ED loans. Borrowers must meet certain requirements to be eligible for cancellation. |
capitalized interest |
Unpaid, accumulated interest that is added to the loan principal. Because the principal increases, so does the total cost of the loan. |
consolidation |
The combination of several types of federal education loans into one new loan. Consolidation simplifies loan repayment. |
default |
Failure to repay a loan in accordance with the terms of the promissory note. |
deferment |
The temporary postponement of loan payments; during this time, the borrower does not have to pay either principal or interest. |
delinquency |
Failure to make payments when due, as specified in the promissory note and in the selected repayment plan. Delinquency can lead to default. |
Direct Loans |
Loans made by the U.S. Department of Education (instead of a private lending institution) under the William D. Ford Federal Direct Student Loan Program. Direct Loans consist of Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans. As is true for FFELs, a student can receive a Direct Unsubsidized Loan regardless of financial need. The interest rate on Direct Subsidized, Direct Unsubsidized, and Direct Consolidation Loans is variable but does not exceed 8.25 percent. The interest rate on Direct PLUS Loans is also variable but does not exceed 9 percent. Students and parents can receive Direct Loans only if the student's school participates in the Direct Loan Program.
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Direct Loan Servicing Center |
ED's agent that collects Direct Loans and processes payments, deferments, forbearances, and repayment options.
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FFEL |
The "umbrella" term for the Federal Family Education Loan Program, consisting of Federal (FFEL) Stafford Loans (subsidized and unsubsidized), Federal (FFEL) PLUS Loans, and Federal (FFEL) Consolidation Loans. The interest rate on FFEL Stafford Loans and FFEL Consolidation Loans is variable but does not exceed 8.25 percent. The interest rate on FFEL PLUS Loans is also variable but does not exceed 9 percent. |
forbearance |
Temporary postponement or reduction of payments because of the borrower's financial difficulties. A forbearance also may be an extension of the repayment period. All borrowers are charged interest during forbearance. |
grace period |
A period of time between when the borrower graduates or drops below half-time status and when repayment begins. For a FFEL Stafford Loan or Direct Stafford Loan, the grace period is six months. During the grace period on an unsubsidized FFEL Stafford Loan or Direct Stafford Loan, interest that accrues must be paid or it will be capitalized. For a Federal Perkins Loan, the grace period is nine months. There is no grace period for a FFEL PLUS Loan, Direct PLUS Loan, or FFEL Consolidation Loan. A Direct Consolidation Loan usually has no grace period, but a borrower might be entitled to one if at least one of the loans being consolidated is a FFEL Stafford Loan or Direct Stafford Loan that is in an in-school status. |
guarantor |
The state or nonprofit private agency that administers the Federal Family Education Loan (FFEL) Program in each state. |
interest |
A loan expense charged a borrower for the use of borrowed money. Interest is calculated as a percentage of the principal of the loan, which includes the original amount borrowed and any capitalized interest. Accrued interest is interest that accumulates on the unpaid principal balance of a loan. |
lender |
The organization that made the loan initially; the lender could be the borrower's school (for Federal Perkins Loans); a bank, credit union, or other lending institution (for FFELs), or the U.S. Department of Education (for Direct Loans). |
loan holder |
The organization that currently "owns" the loan and to which the borrower owes repayment. Many banks sell loans, so the initial lender and the current holder could be different. |
loan principal |
The total sum of money borrowed. Loan principal includes the original amount borrowed plus any interest that has been capitalized. |
Perkins Loans |
Low-interest (5 percent) loans made under the Federal Perkins Loan Program to undergraduate and graduate students. Because the school is the lender, students repay the school that made the Federal Perkins Loan or to the agent the school hires to service the loan. A student must demonstrate financial need to qualify for one of these loans. |
PLUS Loans |
Loans made to the parent of a student. Parents with good credit histories can borrow to help pay for the education expenses of a child who is a dependent undergraduate student enrolled at least half time at a participating school. There are FFEL PLUS Loans and Direct PLUS Loans. The interest rate is variable but does not exceed 9 percent. |
prepayment |
Any amount the borrower pays before it is required to be paid under the terms of the loan's promissory note. There is never a penalty for prepaying principal or interest on U.S. Department of Education loans. |
promissory note |
A binding legal contract between a loan holder and a borrower. The promissory note contains the loan terms and conditions, including how and when the loan must be repaid. By signing this note, the borrower agrees to repay the loan. |
repayment schedule |
A statement the loan holder provides the borrower that lists the amount borrowed, the amount of monthly payments, and the date payments are due. |
secondary market |
An agency that purchases student loans from originating lenders so these lenders can make additional student loans. The Student Loan Marketing Association (Sallie Mae) is an example of a secondary market. If such an organization buys the loan, that organization becomes the "loan holder"-see the previous page. |
servicer |
An agency a school or lender employs to service (collect) a student loan account. Often, the borrower will deal with the loan servicer when there are questions about repayment. Servicers also approve deferments and forbearances on the lender's behalf. |
Stafford Loans |
Loans made to undergraduate and graduate students under the FFEL and Direct Loan programs. Borrowers can receive FFEL or Direct Stafford Loans regardless of financial need. The interest rate is variable but does not exceed 8.25 percent. |
subsidized loan |
A federal student loan made on the basis of the borrower's financial need and other specific eligibility requirements. The federal government pays the interest on these loans while borrowers are enrolled at least half time, during the grace period, or during authorized periods of deferment. |
unsubsidized loan |
A federal student loan made to a borrower meeting specific eligibility requirements, but not based on financial need. The borrower is responsible for paying all interest that accrues throughout the life of an unsubsidized loan. During in-school status, deferment, and forbearance periods, the borrower may choose to pay the interest charged on the loan or allow the interest to be capitalized (added to the loan principal). |
