Accrued interest

Interest (the amount charged at a certain percentage rate for borrowed money) that accumulates on the unpaid balance of the amount you borrowed (the loan principal).

Annual percentage rate (APR)

Total annual cost of a loan, including fees and interest.


Money in savings accounts and investments, including stocks, bonds, a business, a farm or other real estate.

Award letter

The official document issued by a college financial aid office that lists all the financial aid for which you are eligible (your “financial aid package”), if you accept your admission offer and register for courses.

Base year

The tax year used to determine how your financial aid will be awarded. (This is usually the year before you plan to enter college.)


Person who takes out a loan.

Capitalization of interest

The addition of unpaid interest to the principal balance, so that you are paying interest on the interest as well as on the principal (the amount you borrowed).

Cost of Attendance

The total cost of attending a college or university for one year, including tuition and fees, housing and food, and books, supplies and transportation.


Person with good credit who adds his or her signature to the student borrower’s on a promissory note. This person becomes legally liable for repayment of the loan, if the student does not or cannot make the payments.

Custodial parent

The parent you lived with for the most time, the year before you enter college. If you lived with both divorced or separated parents for the same amount of time, the custodial parent is the one who provided the most financial support.


Failure to repay a loan, as specified in the loan documents. There are severe penalties for default, including a ruined credit rating and denial of future loans.


Permissible postponement of loan repayment for a specified period of time.


Loan payment not received by the due date. A late fee is usually charged, and you have a certain amount of time (specified in the loan documents) before you are considered to be in default.

Demonstrated financial need

The difference between the Cost of Attendance and the Expected Family Contribution.

Dependent student

A student under age 24 who is financially dependent on parents or other relatives. Most freshmen admitted at colleges and universities are considered dependents.


Payment of loan funds to your college by your lender (usually at the beginning of the semester).

Disclosure statement

A lender’s document, stipulating the total costs of a loan, including the interest rate and finance charges.

Expected Family Contribution (EFC)

The amount that is used to determine your eligibility for federal student financial aid. The EFC is based on the financial information about your family that you provided in your FAFSA.

Eligible non-citizen

A permanent resident of the United States who has an I-151, I-551 or I-551C Permanent Resident Card, OR an Arrival-Departure Record (I-94) from U.S. Citizenship and Immigration Services with one of the following designations: Refugee/Asylum Granted/Cuban-Haitian Entrant, Status Pending/ T-visa.

Exit Loan Counseling, Mandatory

(See box on this page.)

FAFSA (Free Application for Federal Student Aid)

The form that you must complete to be eligible for federal aid.

Federal Stafford Loans, Subsidized

Loans on which the federal government pays the interest while you are enrolled at least half-time, and for up to six months after you graduate or drop below half-time enrollment.

Federal Stafford Loans, Unsubsidized

Loans for which you are responsible for interest payments from the date of disbursement. The accrued interest is "capitalized"—added to the principal balance. You are charged interest on the total amount of principal plus accrued interest.

Financial aid eligibility/financial need

The Cost of Attendance minus the Expected Family Contribution, which is individually determined for you by the college.

Financial aid award/package

The total amount of federal and nonfederal financial aid you have been awarded, including scholarships, grants, loans and/or Federal Work-Study.


Permission to temporarily stop or reduce your federal loan payments.

Grace period

The time between your graduation (or less-than-half-time enrollment) and the day your loan repayment begins.

Gross income

Total wages, before taxes, and deductions and allowances reported on a tax form.

Guarantee agency/Guarantor

A state agency or private nonprofit institution that insures student loans against default and helps administer federal loan programs.


The fee charged by the lender for the use of borrowed money, expressed as a percentage.

Interest-only payment

Payment that covers only the accumulated interest, not the loan principal (the amount you borrowed).

Institutional loan

A loan made by your college or university.


The source of the money you are borrowing. Lenders include educational institutions, the U.S. Department of Education, state agency and banks.

Loan consolidation

The Federal Consolidation Loan Program enables you to combine any or all of your eligible outstanding federal student loans into one new loan with one monthly payment. For more information, visit these websites:

Loan forgiveness

Cancellation of your obligation to pay outstanding interest and/or to make outstanding loan payments, after you satisfactorily complete a federal or state service program.

Loan servicer

The organization that administers and collects the loan payments—either the lender itself or a company working for the lender that specializes in student loan billing.

National Student Loan Data System (NSLDS)

The federal student financial aid database: By entering your PIN (which you obtained at before filing your FAFSA), you can get information on your loan status.

Ombudsman (Federal Student Aid)

An independent official authorized to investigate and resolve disputes between student loan borrowers and loan agencies, servicers and companies. For more information, please visit or call (877) 557-2575.

Origination fee

A charge for establishing a new loan, which is deducted from the amount of the loan your receive.

Pay-off balance

The amount you owe if you pay off your loan immediately, including unpaid principal plus unpaid accrued interest.


The amount you are borrowing.


A legal document that stipulates the terms under which you agree to repay the loan.

Secondary market

Institutions (such as Sallie Mae, the nation's largest secondary market) that buy student loans from the original lenders. The loans are sold to generate fresh capital with which to make new student loans.

Tax credit

An amount you can subtract from the tax you owe. (Of course you have to owe tax and file a tax return to get the credit.)

Tax deduction

An expense that you may subtract from your adjusted gross income, so that your taxable income is lowered.

Tuition payment plan

Method of making the Expected Family Contribution by means of regular payments spread throughout the year, rather than at the beginning of each term.

Variable interest

Rates that may change once a year, so that you don’t know in advance how much you’ll be paying in the future.


Method of double-checking the information you provided on your FAFSA. If you receive a request for verification from a college, you must respond.

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