Glossary of Frequently Used Terms
Amortization
The process of
spreading out loan payments over a period of time. Borrowers receive
estimated repayment or amortization schedules when they choose a
particular repayment option.
Borrower benefits
Sometimes
referred to as repayment incentives or rewards programs, these are
usually interest rate discounts and account credits offered by some
lenders or loan programs for timely repayment and payment through
an automatic bank draft.
Capitalization
The process
of adding any accrued and unpaid interest back to the original principal
amount borrowed, thereby increasing the principal balance owed.
Capitalization policies vary by loan program, and by lender.
Deferment
Period of time, usually
following grace, during which a borrower may defer or delay repayment.
Deferments may be borrower based (also referred to as borrower level),
as is the case with old and new Stafford borrowers. Deferments can
also be loan specific, which simply means the deferment is based
not on the borrower, but on the loan type (as is the case with HEAL,
Perkins, PCL, and some other loans). Borrowers must apply with their
loan servicer for deferments. Regardless of type, deferments are
good for one year at a time.
Direct Loan Consolidation
The
consolidation program offered by the Federal government through
the Direct Loan Program (see FDSLP).
Federal Loan Consolidation
The consolidation program offered by banks and other similar lending institutions
(see FFELP).
Fixed interest rate
Interest
rate that is fixed and will not change throughout the life of the
loan.
Forbearance
Period of time,
often following grace and deferment, during which a borrower may
either a) make payments lower than those scheduled or b) delay repayment
completely for a designated period of time, usually 6 months to
one year. Borrowers must apply with their loan servicer for forbearance.
Forbearance periods are usually loan specific, and forbearance provisions
usually vary by loan type. Interest accrues on all loans during
forbearance (including loans formerly subsidized), interest which,
if not paid during forbearance, will be capitalized at the end of
each forbearance period.
FDSLP
Federal Direct Student Loan
Program (FDSLP) or Direct Lending, the government's loan program
where students borrow Federal Stafford Loans directly from the Federal
government instead of from banks or other similar lending institutions.
Stafford Loans borrowed through the Direct Loan Program are often
referred to as Direct Loans, and borrowers with Direct Loans are
often referred to as Direct Loan borrowers.
FFELP
Federal Family Education Loan
Program (FFELP), what some would call the traditional loan program
where students borrow Federal Stafford Loans through banks or other
similar lending institutions. Borrowers with Stafford Loans through
FFELP are sometimes referred to as FFELP borrowers.
Grace
Period of time during which
a borrower is not required to begin repayment. Grace periods are
loan specific, meaning a) the length of the grace period varies
by loan type and b) once used in their entirety, the borrower may
not use the grace period again for that particular loan. Borrowers
do not have to apply for grace.
GSL Program Loans
The umbrella name
for the Guaranteed Student Loan (GSL), Supplemental Loan for Students
(SLS), Parent Loan for Undergraduate Students (PLUS), and Federal
Stafford Loans (Subsidized and Unsubsidized). GSL and SLS loans
are no longer made, having been replaced with Stafford Loans. Some
publications will use Stafford Loans to refer to GSL Program Loans.
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HEAL Refinancing
The consolidation
program formerly offered by the Department of Health and Human Services
(DHHS) for HEAL borrowers.
Holder
The organization that owns
a borrower's loan or holds the paper and to whom the borrower owes
repayment. Some lenders sell loans to other lenders, resulting in
a new holder for the borrower.
Lender
The organization that provides
the money for a student loan. The lender may be a bank, a credit
union, a school, the federal government, or another lending organization.
The lender is the organization to whom the borrower initially owes
repayment, and at that point, the lender is also the holder of the
borrower's loan.
'New' Stafford borrower
Borrower
whose first Stafford Loan disbursement was made on or after July
1, 1993.
'Old' Stafford borrower
Borrower
who had an outstanding balance on a GSL Program Loan (GSL, SLS,
Stafford) as of July 1, 1993, and who did not pay off that balance
in full prior to taking out a new Stafford Loan after that date.
Prime Rate
The Prime Rate is the
rate banks use in pricing short-term commercial loans to their most
creditworthy customers. This index is currently used to calculate
the interest rate on some private loans. The Prime Rate can also
be found in the business section of most newspapers, and in the
Tuesday edition of the Wall Street Journal.
Secondary Market
An organization that specializes in buying student loans, resulting in their
becoming the loan's holder.
Servicer
An organization hired by a lender or holder to provide loan servicing functions
and to work with borrowers on repayment issues. Some organizations serve as
both the holder and servicer of student loans. You may find that the loan servicer
is the most important organization you will work with on your student loans.
Single Holder Provision
The
provision which states that FFELP borrowers who have Stafford loans owned
(held) by one holder must first contact that holder for a consolidation
loan, and may only shop for a consolidation lender if their lender
does not offer consolidation. The Single Holder Provision states
that FFELP borrowers with at least two loan
holders may look for another FFELP consolidating lender if they
choose to do so.
Subsidized loans
Loans that are
interest free to the borrower during school, grace, and other authorized
deferment periods. Examples include Federal Subsidized Stafford
(either FFELP or Direct), Federal Perkins,
Primary Care Loans (PCL), Loans for Disadvantaged Students (LDS),
Health Professions Student Loans (HPSL), and some institutional
loans (check your promissory note or ask your medical school financial
aid officer).
Unsubsidized loans
Loans that
accrue interest from the date of disbursement, interest which, if
unpaid by the borrower, will be added back to the principal through
a process called capitalization. Examples include Federal Unsubsidized
Stafford (either FFELP or Direct), Federal
SLS, Federal PLUS, Health Education Assistance Loans (HEAL),
private loans, and some institutional loans (check your promissory
note or ask your medical school financial aid officer).
Variable interest rate
Interest rate that varies throughout the life of the loan. Variable
rates are usually tied or indexed to a government rate such as the
91-Day T-Bill or the Prime Rate. Loans that are tied to a variable
rate usually change quarterly or annually every July 1.
91-Day T-Bill or 13-Week T-Bill
The
91-Day T-Bill is a short-term U.S. government debt obligation with
a term of 91 days. This government index is currently used to calculate
the interest rate on many loans, including most Federal Subsidized
and Unsubsidized Stafford loans, HEAL loans, and
some private loans. The 91-Day T-Bill can be found in the business
section of most newspapers.
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