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Glossary

  • Borrower - Person responsible for repaying a loan who has signed and agreed to the terms in the promissory note.
  • Capitalization - Adding unpaid interest to the loan principal. Capitalization increases the principal amount of the loan and its total cost.
  • Default - Failure to repay a loan according to the terms of the promissory note. This failure must persist for 270 days.
  • Deferment - A postponement of payment on a loan that is allowed under certain conditions and during which interest does not accrue for subsidized loans.
  • Dependent student - A student who does not meet any of the criteria for an independent student (see below).
  • Disbursement - A payment of loan money to the student or parent borrower.
  • Discharge - The release of a borrower from the obligation to repay his or her loan.
  • Direct Loan Program - The William D. Ford Federal Direct Loan Program provides loans to student and parent borrowers directly through the U.S. Department of Education rather than through a bank or other lender.
  • Direct Loan Servicing Center - The U.S. Department of Education's agent contracted to collect Direct Loans and handle deferments, repayment options, and consolidation.
  • Direct Subsidized Stafford Loan - A loan for students with financial need as determined by federal regulations. No interest is charged while you are in school at least half-time, during your grace period, and during deferment periods.
  • Direct Unsubsidized Stafford Loan - A student loan that is not based on financial need. Interest is charged during all periods.
  • Expected Family Contribution (EFC) - The EFC is a measure of the financial strength of a student's family. The U.S. Department of Education calculates a student's EFC based on information provided on the Free Application for Federal Student Aid (FAFSA).
  • Forbearance - A postponement of payment on a loan, typically if the borrower doesn't qualify for a deferment and is unable to make payments for a reason such as poor health. Interest continues to accrue during forbearance.
  • Grace period - A six-month period before the first payment must be made on a subsidized or unsubsidized Stafford loan. The grace period begins the day after the borrower ceases to be enrolled at least half time.
  • Independent student - A student who is at least 24 years old, married, a graduate or professional student, a veteran or on active duty in the military for other than training or state purposes, an orphan, a ward of the court, or who has legal dependents other than a spouse.
  • Interest - An expense of borrowing money that is calculated as a percentage of the amount borrowed.
  • Loan - Money borrowed that must be repaid.
  • Loan fee - An expense of borrowing deducted proportionately from each loan disbursement.
  • Principal balance - The amount owed on a loan, which includes any capitalized interest.
  • Promissory note - A legally binding contract between a lender and a borrower. The promissory note contains the terms and conditions of the loan, including how and when the loan must be repaid.
  • 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.
  • Variable interest - Rate of interest on a loan that is tied to a stated index and changes annually every July 1 as the index changes.

 

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