Glossary of terms

Accrued Interest — Interest that accumulates on the loan which you must pay.

Adjusted Gross Income — Your gross income after tax deductions.

Amortization — The reduction and retirement of a debt through periodic payments over time.

Annual Percentage Rate (APR) — A percentage calculation that reflects the total  cost of a loan (interest plus all fees) on an  annual basis.

Capitalization of Interest — The process by which accrued interest on a loan is added to the principal balance. That amount then becomes part of the principal balance and begins to accrue interest. Making payments while you’re in school will keep interest from being capitalized.

Credit Report — A summary of credit history maintained by an authorized consumer reporting agency and sent to third parties when requested. Credit reports include information such as current and recent addresses, employment information, payment performance for at least the past seven years, type of debt owed, the lending institution for each account, available credit and current balances.

Default — The failure to make payments when due or to comply with other terms of the promissory note.

Deferment — A period during which repayment of the principal amount of the loan is suspended as a result of meeting one of the requirements established by law and/or contained in the promissory note.

Delinquency — When payment is not made by the due date.

Disclosure — A document that provides specific legal and financial details about a loan.

Electronic Funds Transfer (EFT) — Electronic exchange or transfer of money from one account to another, either within a single financial institution or across multiple institutions, through computer-based systems.

Entrance Counseling — Counseling you must take before you receive your first federal student loan.

Exit Counseling — Counseling you must take when you are finishing school and will soon start repaying your loans.

Forbearance — An agreement between you and the lender/loan holder/servicer to accept a temporary suspension of loan payment.

Garnishment — The automatic deduction of a portion of your paycheck by your employer if you have defaulted on your loan. A lender/holder or the government may take this action to force repayment of a defaulted loan.

Grace Period — A period of time between when you finish school and when you have to start repaying your student loans. The grace period for federal student loans is six months. Grace periods for private student loans will vary by lender.

Gross Income — Income from all sources before deducting allowable expenses, which results in net income.

Guarantee Fee — A percentage of the principal charged to you to insure a lender/holder against loss if you don’t repay your loan.

Interest — A charge for the use of money. Interest is calculated as a yearly percentage of the loan principal.

Late Fee — A fee assessed after you miss a regularly scheduled payment.

Lender — The bank, savings and loan company, credit union or other approved organization from which you obtain a loan.

Loan Holder — The party that currently owns the loan and holds its legal title.

Loan Period — The academic year, or portion thereof, for which you are enrolled and are seeking one or more loans.

Master Promissory Note (MPN) — The legally binding contract between you and the lender. The MPN allows you to borrow multiple loans using the single note (for up to 10 years from the specified lender).

Non-negotiable Funds (NNF) Fee — A flat fee assessed from the bank if your payment does not go through.

Origination Fee — A loan processing fee that you pay to the lender or loan originator. In the case of Federal Direct Loans, the fee is paid to the federal government. It is calculated as a percentage of the total amount borrowed and is typically charged to you by the lender (although some lenders pay a portion or all of this fee on your behalf). This fee is normally deducted from the amount of each loan disbursement.

Past Due — When a required payment has not been received by the payment due date.

Payment Application — The order in which payments are applied. Payments are applied to fees, then interest, and then principal. If additional payments are received that satisfy the fees and interest, the remaining portion of the payment is automatically applied to the principal balance.

Payment Evaluation — Review of a loan and modification of the monthly payment amount, if needed, so the loan is paid off within the loan term.

Principal — The total amount borrowed plus any capitalized interest.

Servicer — The government or private agency that collects the payments you make on your student loans.