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Glossary of loan terms

Accrued interest
Each day, interest is calculated on the unpaid principal balance of a loan at the prescribed rate outlined in the promissory note, and is added to the principal.

Capitalized interest
Interest that is added to the principal amount of the loan rather than being paid by the borrower as it is charged.

Consolidation loan
A loan that combines a number of eligible student loans into one new loan with a fixed interest rate and extended repayment terms—often resulting in significantly lower monthly payments.

Default
Failure to meet the loan terms as outlined in the promissory note.

Deferment
A means through which student loan payments may be temporarily postponed based on certain eligibility criteria. Deferments are generally loan entitlements and are outlined in the promissory note. If your loan is subsidized, the federal government will pay the interest that accrues during a deferment. If it is unsubsidized, you will be responsible for paying the interest that accrues.

EFC
An acronym for Expected Family Contribution. Determined through a “needs analysis” based on information you provide on your FAFSA, your EFC is the contribution you are expected to make towards the cost of your education.

FAFSA
An acronym for Free Application for Federal Student Aid—a form used by the Department of Education and many schools to determine your eligibility for aid.

FFELP (or FFEL)
An acronym for the Federal Family Education loan Program. The FFELP includes Federal Stafford, PLUS and Consolidation loans.

Fixed interest
A set interest rate that does not change during the loan term.

Forbearance
A temporary postponement of full or partial student loan payments. You will still be responsible for interest that accrues on the loan during the forbearance period.

Grace period
The period of time between a student’s graduation (or separation) from school and when his/her loan repayments begin. Typically, the grace period lasts six to nine months, depending on your loan type.

Grant
Need-based financial aid, often referred to as “gift aid” because it doesn’t have to be repaid.

Guarantee fee
A fee that is paid to the guarantee agency to insure the loan against default.

Interest
A loan expense charged by the lender and paid by the borrower for the use of borrowed money. The expense is calculated as a percentage of the principal amount (loan amount) borrowed.

Origination fee
A fee charged to the borrower and typically deducted from the proceeds of a loan before it is disbursed to offset the loan administrative costs.

Principal
The original loan amount borrowed.

Promissory note
The legal contract between a borrower and lender outlining the terms and conditions of the loan transaction and repayment.

PLUS loan
An acronym for Parent loan for Undergraduate Students. These federal loans are available to parents of dependent undergraduate students to help pay up to the total cost of attendance, less any financial aid received by the student.

Scholarships
Financial aid that typically doesn’t have to be repaid. Scholarships may be awarded based on merit, skill, course of study, or occasionally, need.

Servicer
The company that administers your loan and collects payments. The servicer may be different from your lender.

Subsidized loan
A need-based loan on which the government pays the interest while the student is attending school, during the grace period and during deferment.

Unsubsidized loan
A loan on which the government does not pay the interest while the student is attending school, during the grace period and during deferment.

Variable interest
Interest on a loan that fluctuates—generally based on market conditions.

Source: AMA and CFS, Medical Education Financing and Debt Management

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