GLOSSARY

Student Loan Lingo 101

Capitalization: The process of adding unpaid interest to the principal balance of a loan, increasing the total amount used to calculate interest moving forward and increasing the total amount owed over the life of the loan.

Consolidating Loans: Paying off one or more federal student loans by applying for a new Direct Consolidation loan, often to combine multiple loans to simplify repayment or to make loans eligible for a better repayment plan or loan forgiveness program. 

Co-signer: A person who agrees to be responsible for repaying a loan if the primary borrower fails to do so. Co-signers can be required for private student loans. You don’t need a cosigner for federal student loans.

Deferment: A period during which repayment of a loan principal is temporarily postponed, typically due to enrollment in school, economic hardship, or military service, and during which interest doesn’t accrue on subsidized loans.

Default: Failure to repay a student loan in a certain amount of time that could lead to serious consequences such as wage garnishments, tax refund seizure, and more. For Direct and FFEL Loans, if you haven’t made a payment in more than 270 days, your loan is placed in default.

Delinquent: The first day after you miss a student loan payment, your loan becomes past due, or delinquent.

Direct Loan: The only type of federal student loan the government issues today. Direct Loans can include Parent PLUS and Grad PLUS loans.

Disbursement: The release of loan funds to a borrower or school for educational expenses. The date of disbursement is sometimes important to know for certain student loan relief applications.

FAFSA (Free Application for Federal Student Aid): A form used to apply for federal financial aid for college, including grants, loans, and work-study programs.

FFEL Loan: Federal Family Education Loans. An older type of federal student loan program that stopped being issued in 2010.  Stafford Loans, Grad PLUS Loans, Parent PLUS Loans, Joint Spousal Consolidation Loans, and Consolidated Loans can all be FFEL loans if they were issued before 2010. FFEL Loans may be held by commercial lenders and other entities. If you have a FFEL Loan, it may be worth considering consolidating into a new Direct Consolidation Loan to access better repayment plans and forgiveness options.

Forbearance: A temporary pause or reduction in loan payments granted by the lender due to financial hardship, illness, or other qualifying circumstances.

Grace Period: A period of time, typically six months, after graduating, leaving school, or dropping below half-time enrollment during which loan repayment is not required.

Income-Driven Repayment (IDR) Plan: Federal loan repayment plans based on the borrower’s income and family size, with payments as low as $0. On an IDR plan, borrowers can have their loan balances canceled automatically after 10 to 25 years of repayment, depending on the type of loan they have, the plan they are enrolled in, and the amount they originally borrowed.

Loan Holder: A loan holder is the owner of your student loans. Direct Loans are only held by the Department of Education. Some older federal student loans can be owned and held by a private company or other entity or can be held by the federal government through the Department of Education. It is important to know whether your federal loans are held by the Department of Education or some other entity because your options for student loan relief may be different if the Department of Education does not own or hold your loans.

Loan Servicer: A company hired to manage your student loans. Loan servicers handle most aspects of student loans, including billing, repayment, and tracking student loan forgiveness progress.

Parent PLUS Loan: A federal loan available to parents of dependent undergraduate students to help cover the student’s educational expenses. The parent is the borrower on Parent PLUS loans, not the student.

Perkins Loan: A federal loan program for undergraduate and graduate students with exceptional financial need where schools receive federal funds to issue and manage loans. Perkins Loans are no longer issued today.

Principal Balance: The original amount borrowed on a loan, excluding interest and fees.

Private Student Loan: A non-federal loan offered by private lenders, banks, schools, and other entities, to cover educational expenses, typically with higher interest rates and fewer borrower protections than federal loans.

Public Service Loan Forgiveness (PSLF): A federal program that forgives the remaining balance on eligible Direct Loans after 120 qualifying monthly payments while working full-time for a qualifying public service or government employer.

Refinancing: Obtaining a new loan with different terms to replace an existing loan, typically used to lower interest rates or adjust repayment terms. Available for private loans. While a borrower can refinance their federal loan into a private loan, this is generally not recommended as it cannot be undone and borrowers lose out on repayment, loan forgiveness and other benefits available to federal student loans, but not private student loans.

Repayment Plan: A schedule outlining how and when a borrower will repay a loan, including the amount and frequency of payments.

Subsidized Loan: A federal loan only available to undergraduate borrowers that are based on financial need. Interest does not accrue on subsidized loans while you are in school or during grace periods or deferments.

Unsubsidized Loan: A federal loan that does not require you to show financial need. These are available to undergraduate and graduate school students. Interest accrues while you are in school and is added to your principal balance if it’s not paid each year. Many borrowers have both subsidized and unsubsidized loans.