Financial Aid Glossary

Financial Aid Glossary

IRS Form 1098-E is the Student Loan Interest Statement sent to the IRS and borrowers by their loan servicer to report student loan interest payments. As provided in the Taxpayer Relief Act of 1997, borrowers may be eligible to claim a deduction for interest paid on qualified student loans for educational expenses.

IRS Form 1098-T is sent to the Internal Revenue Service (IRS) and students by educational institutions to report amounts billed to students for qualified tuition and related expenses, as well as other information.

Academic Year
A period of enrollment defined by the school that usually consists of two semesters or three quarters or trimesters, each with a certain amount of credit hours.

Accrued interest
The amount of loan Interest that has already occurred, but has not yet been paid to the lender by the borrower.

Amortization is paying off an amount owed over time by making planned, incremental payments of principal and interest. An amortization schedule can provide you an estimate of your monthly loan repayments and calculates how much will go toward the principal and how much towards interest.

Associate's Degree
The degree granted by two-year colleges.

Award Letter
An official document issued by a school's financial aid office that lists all of the financial aid awarded to the student. This letter provides details on their analysis of your financial need and the breakdown of your financial aid package according to amount, source and type of aid. The award letter may include the terms and conditions for the financial aid and information about the cost of attendance. You may be required to sign a copy of the letter, indicating whether you accept or decline each source of aid, and return it to the financial aid office. Some schools might refer to the award letter as the "Financial Aid Notification (FAN)".

A legal action in which a person who is unable to meet the financial obligations is declared bankrupt by a decree of the court under Federal Bankruptcy Law. Federal student loans, however, cannot normally be discharged through bankruptcy.

The person who by signing the Promissory Note, is legally responsible for the repayment of a loan.

Bursar's Office
The college or university office that is responsible for billing of student tuition accounts and collection of university charges. This may also be referred to the Business Office or Student Accounts Office.

Clause in which a portion or all of a student's loans can be canceled. Promissory notes outline the circumstances under which loans can be canceled.

This occurs when unpaid interest is added to the principal of the loan, increasing the monthly payment and the total balance of the loan.

A cosigner on a loan assumes responsibility for the loan if the borrower should fail to repay it.

Cost of Attendance (COA)
An estimate of the student's education expenses for a specified period of enrollment. COA usually includes tuition and fees, room and board (or a housing and food allowance for off-campus students), and allowances for books, supplies, transportation, loan fees, and dependent care expenses if applicable. It also covers miscellaneous and personal expenses, including an allowance for the rental or purchase of a personal computer. Costs related to a disability may also be covered.

Credit Rating
A numerical score based on credit limits, balances, and personal information assigned by consumer reporting agencies to determine an individual's ability to pay back loans and credit cards.

Failure to repay a loan according to the terms and conditions of a signed promissory note.

Under certain circumstances, the temporary postponement of loan payments for a limited period of time. Deferments, allowed for specific borrower activities, extend the loan repayment period by the length of the deferment period. For Federal student loans, you must meet the eligibility requirements and provide supporting documentation for the type of deferment you are seeking. During deferment, interest will continue to accrue on any unsubsidized loans, but not on any subsidized loans. Any outstanding unsubsidized interest at the end of the deferment period will be added to the principal balance. Deferment provisions may not be applicable to Private educational loans.

This occurs when loan payments are not received by the due dates.

Dependent Student
A student who does not meet any of the criteria for an independent student. When you complete your Free Application for Federal Student Aid (FAFSA) your dependency status is determined.

Direct Costs
Costs that the college or university directly bills to the student. Tuition and fees are direct costs.

The date loan funds are sent to the college or university. In most cases loans are disbursed in two or more equal installments.

Forgiveness, cancellation, and discharge all refer to the cancellation of the borrower’s obligation to repay all or a portion of the loan.

Disclosure Statement
A statement from a lender to a borrower that provides the borrower with information about the terms and conditions of the loan. The borrower may receive multiple disclosure statements during the loan process.

Electronic Funds Transfer (EFT)
The process of electronically transferring the borrower’s loan proceeds from the lender to a school's account or the school's financial institution.

Enrollment Status
An indication of whether you are a full-time or half-time student. Generally, you must be enrolled at least half-time (and in some cases full-time) to qualify for financial aid.

Exit Counseling
A mandatory information session that takes place before you graduate or drop below half-time enrollment that explains your loan repayment responsibilities for Direct Loan borrowers.

Expected Family Contribution
The out-of-pocket expenses a family and/or student is expected to contribute toward the cost of college, graduate or professional school. The EFC is the basis for financial need. The EFC is reported to you on your Student Aid Report (SAR).

The Free Application for Federal Student Aid is the federal form that must be completed to be considered for all federal financial aid funds.

Federal Pell Grant
A federal grant program for needy post-secondary students who have not received a bachelor's degree or first professional degree.

Financial Aid
Assistance provided to the student and the family to help them pay for the student's education. Major forms of financial aid include gift aid (grants and scholarships) and self-help aid (loans and work).

Financial Need
The difference between a student's Cost of Attendance and the Expected Family Contribution. It is the amount of financial aid the student needs to afford attendance at a particular college.

Fixed Interest Rate
Refers to loan interest rates that will not change throughout the entire life cycle of the loan.

A period during which the borrower's monthly payments are temporarily suspended or reduced. Interest continues to accrue during a forbearance period and if unpaid, will be added to the principal balance (capitalized) possibly increasing the total amount you owe. Forbearance is usually granted at the discretion of the lender.

The FSA ID is a username and password combination that services as a student’s or parent’s identifier to allow access to personal information in various U.S. Department of Education systems and acts as a digital signature on some online forms.

Full-time student
Full-time status is determined by your school. It usually refers to when a student is taking at least 12 credit hours of class for undergraduate students and nine credit hours for graduate students.

Grace Period
For certain types of federal student loans, a period of time after a borrower graduates (or ceases to be enrolled at least half-time) when you are not required to make payments and ends when full repayment must begin. The grace period for most federal student loans is six months Most private education loans typically do not have a grace period.

Financial aid, often based on financial need that does not require repayment from present or future earnings.

Half-time student
Half-time status is determined by your school. It usually refers to when a student is taking at least six credit hours of class. In most cases, enrollment must be at least half-time to qualify for financial aid.

Income Driven Repayment
An income-driven repayment plan sets your monthly student loan payment at an amount that is intended to be affordable based on your income and family size. Borrowers with Federal loans may be eligible for an income-driven repayment plan.

Independent student
An independent student is one of the following: at least 24 years old, married, a graduate or professional student, a veteran, a member of the armed forces, an orphan, a ward of the court, or someone with legal dependents other than a spouse, and emancipated minor or someone who is homeless or at risk of becoming homeless.

Interest Rate
The percentage at which interest is calculated on your loan. Depending on the type of loan you borrower, your interest rate may be fixed (the interest rate remains the same for the term of the loan) or variable (the rate adjusts according to economic and market conditions on a monthly, quarterly, or annual basis).

Legal dependent
A child or other person (other than a spouse) who lives with and gets more than half of his or her support from the student and will continue to receive that support during the school year.

Legal guardian
A court-appointed individual other than the minor’s parent whose guardianship responsibilities include using personal financial resources to support the person in his or her charge. A student in legal guardianship does not need to report parent information on the FAFSA form because he or she is considered an independent student.

An entity offering loans to students or parents of eligible students. The lender can be a private lender, a bank, the U.S. Department of Education (Direct Loans), or the school.

Less than half-time enrollment
Enrollment status is determined by your school. It usually refers to an undergraduate student taking less than 6 credits per term or graduate student taking less than 5 credits per term. Students enrolled less than half-time are usually ineligible for financial aid under most circumstances.

A type of financial aid which must be repaid, usually with interest.

Loan Forgiveness
Forgiveness, cancellation, and discharge all refer to the cancellation of the borrower’s obligation to repay all or a portion of the loan.

Loan Term
The term of a loan is the period during which the borrower is required to make payments on his or her loans. When the payments are made monthly, the term is usually given as a number of payments or years.

Master Promissory Note (MPN)
A promissory note that can be used to make one or more loans for one or more academic years (up to 10 years).

Need-Based Financial Aid
Financial aid that relies upon financial need as the criterion for eligibility. Need is determined by subtracting the expected family contribution, via the FAFSA, from the institution's established cost of attendance.

Origination Fee
An upfront fee the borrower pays to the lender for originating a student loan.

Past due
Status that occurs if a monthly bill is still unpaid after its due date.

Pell Grant
A need-based financial aid program funded by the federal government. The amount of the award is based on the student's need and enrollment level (full time, three-quarter time, etc.) and the cost of attendance.

Paying off all or part of a loan before it is due.

The amount of the loan funds borrowed plus any interest that has been capitalized.

Private Loans
Also called alternative loans, or supplemental loans, private loans are non-government loans offered by non-profit lenders, banks, credit unions and other lenders. They are not based on financial need, but usually on your creditworthiness and ability to repay.

Repayment Schedule
A statement provided by the lender or servicer of a loan to the borrower that lists the amount borrowed, the amount of monthly payments, and the date payments are due.

Satisfactory Academic Progress (SAP)
The level of academic standing (defined by the school) that a student must maintain to continue receiving federal or state financial aid, including educational loans. Many private educational loans,are also subject to a school's SAP policies.

Money awarded to students based on academic or other achievements to help pay for education expenses. Scholarship generally do not have to be repaid.

Simple Interest
Interest that is paid only on the principal balance of the loan and not on any accrued interest. Most federal student loan programs offer simple interest. Note, however, that capitalizing the interest on an unsubsidized Direct loan is a form of compounded interest.

Standard Repayment Plan
A repayment plan that allows for substantially equal payments over the life of the loan.

Student Aid Report (SAR)
A summary sent to the student after submitting the FAFSA to the federal processor.

Undergraduate Student
A student who is enrolled in a certificate, Associates, or Bachelor’s degree program.

US Department of Education
Government agency that administers several federal student financial aid programs, including the Federal Pell Grant, the Federal Work-Study Program, the Federal Perkins Loans, the Federal Stafford Loans and the Federal PLUS Loans.

Variable Interest
Interest rates that can fluctuate based on the index used and the market conditions. Most variable-interest loans have an annual or maximum cap, which prevents them from exceeding a set amount within a certain period of time.

The process your school uses to confirm an individual student's application data. Students and parents must submit tax returns and other supporting documentation to their financial aid office if asked.

A federal student aid program that provides part-time employment while you are enrolled in school to help pay your education expenses.