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Student Loan Terminology: A Glossary

Bridget CassidyMar 22, 2018

Shopping for student loans can be overwhelming, and trying to understand all of the terms used by student loan lenders doesn't make it any easier. With that in mind, we put together this comprehensive list of student loan terms we hope will assist you in your search for the best lender and ultimately the best loan. When you are ready to shop, take a look at our Top Ten List of Student Loan Lenders for a list of industry-leading private lenders offering competitive rates and terms.

Accrue

This is when interest accumulates on your student loan.

Auto-Debit

This is when you set up to have your student loan payment automatically withdrawn from your checking or savings account.

Auto-Debit Award

This is an award offered by some lenders where you receive a reduction in interest (typically 0.25%) for setting up auto-debit payments from your checking or savings account. The award offer can vary by lender or may not be offered at all. This is also known as an auto-pay interest discount.

Adverse Credit History

This is when your credit score is impaired due to some of the following factors: you defaulted on a previous loan, you are more than 90 days late on any debt, or you have filed for bankruptcy.

Annual Percentage Rate (APR)

This is the annual equivalent of the interest rate associated with your loan. It can be fixed or variable depending on which rate you chose when you open your loan.

Associate Degree

This is an undergraduate academic degree granted after completion of two years of study. Community colleges and vocational colleges typically award associate degrees.

Benefits Lost Upon the sale of a loan

It is commonplace for lenders to sell your loan to another lender. In doing so, you may lose some of the benefits awarded on your original loan. Be sure to ask your lender for details on their loan sale policy before assuming the benefits of your loan will be transferred.

Borrower

This is the person who takes out the loan. For federal student loans, the primary borrower is typically the student. For private student loans, the borrower may be the student with a possible cosigner (see the definition of cosigner below).

Cancellation

This is the term associated with the cancellation of your obligation (as borrower) to repay all or a portion of the remaining balance owed on your student loan.

Career Training Loans

These loans cover education expenses if you are undergoing professional training or working towards a technical certificate at a non-degree-granting institution.

Collection

If you default on your loan, it may go into collection status, meaning it will be sent to a collection agency that will be in charge of recovering the loan amount.

Collection Agency

This is the organization that will attempt to recover any unpaid debt if you default on your loan(s).

Consolidation

This is when you combine your loans into a single loan with a new interest rate. You may consider this if you are having trouble making loan payments or wish to simplify your finances.

Cosigner

You may be required by some private student loan lenders to have a cosigner to qualify you for the loan as well as receive a lower interest rate on the loan. The cosigner is the person who will sign the loan with you and agree to repay the loan in the event you cannot.

Cosigner Release

Some lenders offer a cosigner release where you can remove the cosigner from your loan after meeting the qualifications for that feature. A standard qualification is a good payment history or making 24 consecutive on-time principal and interest payments.

Course Load

Full-time and part-time course loads are used by lenders to determine which loans and what loan specifics you qualify for. Not all lenders require you to be a full-time student to get a loan.

Credit Bureaus

A credit bureau is an institution that collects your credit information and then makes it available to credit card companies and financial institutions.

Credit Score

This is a three-digit number calculated by credit bureaus based on your credit history. It is used by private student lenders to determine if you qualify for a loan and what interest rate you are eligible to receive.

Credit Report

This is a collection of information about your credit history collected by credit bureaus.

Debt-to-Income Ratio

This is a calculation used by private student lenders to determine your ability to repay a loan. Said calculation is based on your total monthly obligations (debt payments) divided by your total monthly income.

Default

Student loan lenders define this term differently but basically; this is when your loan becomes past due. Federal student loans offer more protection to borrowers, allowing up to 270 days with no payment made. Private lenders are not as lenient, with some lenders putting your loan in delinquent or default status after missing only one payment.

Deferment

If you qualify for this repayment option, you have the benefit of temporarily suspending loan repayments or reducing loan repayment amounts for a specified period. This benefit is available for federal student loans borrowers, yet some private lenders also provide it. Full or in-school deferment is an option that allows you to postpone your student loan payments until after you graduate from college or until your enrollment status drops below half-time.

Delinquency

Federal student loans go into delinquent status if you fail to make payments within 90 days, whereas private student loans may go into delinquent status after one missed payment. 

Disclosure Statement

This is the documentation that outlines the terms and conditions of your loan, including the loan amount, interest rate, and repayment option.

Federal Student Loan

This is a loan available through the U.S. government's Department of Education.

Fees

Many student loans have additional charges called fees, which can vary based on your credit score. Examples of fees include loan application, late payment, and loan origination fees.

Fixed Interest Rate

This interest rate remains the same for the life of your loan.

Forbearance

This offer is granted by a lender to allow you to postpone your student loan payments or reduce the amount owed until you can make payments. Unlike deferment, interest still accrues on your loan while in forbearance, increasing the total amount you owe.

Free Application for Federal Student Aid (FAFSA)

A standard federal form used to determine the eligibility for most types of financial aid, including federal student loans.

Grace Period

This is a period of six to nine months that typically begins on the day after you graduate, leave school, or drop below half-time enrollment, in which you are not required to make payments, yet interest may still accrue. Federal and some private student lenders offer grace periods.

Graduate Student Loans

These loans are intended to cover tuition expenses for medical, dental, MBA, and masters or doctorate students.

Interest

Interest is the amount charged by lenders to borrow money over time. Interest is generally stated as an annual percentage of the principal amount owed.

Interest-Only

This is a loan repayment option where you only pay the interest owed on your loan while you attend school or at another pre-determined date.

K-12 Loans

These loans are for the parents of children enrolled in a private school and can cover from kindergarten through high-school.

Lender

This is a private or public entity that extends credit to borrowers.

Litigation

It is the act or process of bringing or contesting a legal action in court.

Loan

This is a sum of money borrowed under the agreement that you will repay the money with interest over a period.

Loan Balance

This is the total unpaid amount of your loan and can include outstanding principal, capitalized and accrued interest, and any associated fees.

Student Loan Type

Student loan types include but are not limited to Undergraduate, Graduate, Career Training, Parent, and K-12.

Maximum Loan Amount

Each loan type has a maximum loan amount; however, you may not qualify for that amount.

Minimum Loan Amount

Each loan type has a maximum loan amount; however, you may not qualify for that amount.

Minimum Monthly Payment

This is the lowest amount you can pay each month for the repayment of your loan.

Monthly Payment

This is your monthly payment billed to you as the borrower to repay your student loan.

Online Application

This convenient service allows you to apply for a student loan using an electronic form on a lender’s website.

Original Loan Balance

This is the beginning principal balance of your loan, which includes any origination and guarantee fees.

Origination

This is the loan application process beginning with the review of your application to actual disbursement of funds.

Origination Fee

As the borrower, you may pay an origination fee (usually 1%) to cover administrative fees for loan processing.

Parent Loan

As the name suggests, these loans are for parents of students working towards a bachelor's, associate's, or graduate degree or certificate at a degree-granting institution.

Prepayment Penalty

This is a fee charged if you pay off all or part of a loan before it is due. Federal student loans do not have prepayment penalties; however, this fee may exist on some private student loans.

Principal

This is the loan amount you borrowed plus any capitalized interest.

Qualifications

These are the eligibility criteria used by lenders to qualify you for a student loan. Each lender may use different loan qualifications. One of the most common qualification criteria is you must be a U.S. citizen and a permanent resident. 

Rehabilitated Loan

If your student loan goes into default, your lender may allow you to “rehabilitate” your loan by having you make a certain amount of voluntary and affordable on-time monthly payments for a specified period. By doing so, you may change the status of your loan from "defaulted" to "rehabilitated."

Repayment Option

You determine your repayment option during the application process on how to repay your loan. Repayment options examples are deferred and interest-only options. 

Repayment Period

This is the period which scheduled payments are required for the repayment of the principal balance and interest on your loan.

Private Student Loan (Alternative Loan)

These loans are offered by banks, credit unions, or other financial institutions to supplement other financial aid or cover attendance expenses.

Term

This is the period in which you must pay off your loan in full. Common terms can be 5, 10, or 20 years.

Undergraduate Loans

These types of loans are designed for undergraduate students undergoing studies in a degree-granting higher education institution.

Variable Interest Rate

This is an interest rate that may change periodically (e.g., quarterly or annually) through the life of your loan based on fluctuations in the market.