Glossary

Cancellation

This occurs when a borrower meets specific requirements that permit nullifying the borrower's obligation to repay a designated portion of principal and interest on a student loan. Also called discharge of a loan. For more information, see our Cancellation page.

Capitalizing Interest

Adding accrued (accumulated) interest to the loan principal rather than having the borrower make monthly interest payments. Capitalizing interest increases the principal amount of the loan and, therefore, the total cost of the loan.

Consolidation Loan

A loan that combines multiple federal student loans into a single loan with one monthly payment. Loans that may be consolidated are those under the following programs:

• All Title IV loan programs
• Health Professions Student Loan (HPSL) Program
• Health Education Assistance Loan (HEAL) Program
• Nursing Student Loan Program (NSLP).

Default

For Perkins Loan: Failure of a borrower to make a loan-installment payment when due or to meet other terms of the signed promissory note or written repayment agreement.

For FFEL and Direct Loans: Failure to make a loan-installment payment for 270 days on a loan repayable in monthly installments or 330 days on a loan repayable in less frequent installments. There can be serious legal consequences for student-loan defaulters.

For more information, see Loan Default.

Deferment

A deferment means you may postpone making payments on your loan under certain specific conditions.

For more information, see Payment Relief.

Direct Loan

A federal program where the U.S. government (not a commercial lender) provides four types of education loans to student and parent borrowers directly through schools:

• Federal Direct Stafford Loan (subsidized, for students),
• Federal Direct Unsubsidized Stafford Loan (for students),
• Federal Direct PLUS Loan (for parents), and
• Federal Direct Consolidation Loan (for students and parents).

These loans are referred to collectively as Direct Loans.

Discharge

The release of a borrower from the obligation to repay his or her loan.

FFEL Loan

The Federal Family Education Loan (FFEL) Program is made up of Federal Stafford Loans (both subsidized and unsubsidized), Federal PLUS Loans for parents, and Federal Consolidation Loans. All of these are long-term loans insured by state or private nonprofit guaranty agencies that are reimbursed by the federal government for all or part of the insurance claims paid to lenders. This guarantee replaces the collateral or security usually required with long-term consumer loans.

Forbearance

If you're unable to make payments on your Direct Loan for reasons such as unexpected personal problems or poor health and you don't qualify for a deferment, you may request forbearance of loan payments.

For more information, see our Payment Relief page.

Guaranteed Student Loan

Loans under the Federal Family Education Loan (FFEL) program were called “Guaranteed Student Loans” prior to 1992. Guaranteed Student Loans, and now FFEL loans, are provided by private lenders, insured by guaranty agencies, and re-insured by the federal government. Collateral requirements for long-term loans from banks and credit unions are waived because of this federal guaranty.

Guaranty Agency (Guarantor)

A state agency or a private, nonprofit institution or organization that administers the financial aid programs within the Federal Family Education Loan (FFEL) Program. A major function is to insure Federal Family Education Loans. Guaranty agencies are reimbursed by the federal government for all or part of the insurance claims they pay to lenders.

Interest

An expense of borrowing money, calculated as a percentage of the amount borrowed.

Lender

A financial institution that makes loans available to eligible students.

Loan

An advance of funds guaranteed by a signed promissory note in which the recipient of the funds promises to repay a specified amount under prescribed conditions. A loan is borrowed money that must be repaid.

Loan fee

An expense of borrowing, deducted proportionately from each loan disbursement.

Loan servicing

Activities undertaken to maintain a loan. Applies to both FFEL and Federal Direct Loans, as well as Federal Perkins loans.

Perkins loan

A Federal Perkins Loan is a low-interest (5 percent) loan for both undergraduate and graduate students with exceptional financial need. Federal Perkins Loans are made through a school's financial aid office. Your school is your lender, and the loan is made with government funds. You must repay this loan.

Principal balance

The amount owed on a loan or loans at any given time. The principal balance may include capitalized interest.

Repayment period

The period during which a borrower is obligated to make payments on his or her loan(s).

Repayment schedule

A statement provided by the Direct Loan Servicing Center to the borrower, that lists the amount borrowed, the amount of monthly payments, and the date payments are due.

Servicer

The financial institution that is administering a student loan (billing the borrower and accepting payment).

Subsidized loan

A loan eligible for interest benefits paid by the federal government. The federal government pays the interest that accrues on subsidized loans during the student’s in-school, grace, authorized deferment, and (if applicable) post-deferment grace periods, if the loan meets certain eligibility requirements.

Title IV

Federal financial aid programs for students attending postsecondary educational institutions, authorized under Title IV of the Higher Education Act of 1965, as amended (HEA). The programs are administered by the U.S. Department of Education. Title IV programs consist of:

• Academic Achievement Scholarship Program
• Federal Pell Grants
• Federal Supplemental Educational Opportunity Grants (FSEOG's)
• Federal Work-Study (FWS)
• Federal Perkins Loans
• William D. Ford Federal Direct Loans
• Federal Family Education Loan (FFEL) Program
• Federal Consolidation Loans
• Gaining Early Awareness and Readiness for Undergraduates Program (GEAR-UP)
• Leveraging Educational Assistance Partnership (LEAP) Program [formerly State Student Incentive Grants (SSIG)]
• Robert C. Byrd Honors Scholarships

Unsubsidized loan

A loan that is not based on financial need. You are responsible for paying the interest on this loan during in-school, grace, and deferment periods as well as during normal repayment.