Student Loan Glossary

Sift through the jargon and buzzwords of student finances with these helpful student loan definitions

Wondering how fixed-interest rates compare to variable? Curious about the difference between Income-Sensitive Repayment and Income-Based Repayment? Find the student loan definitions you need to make the best decision for financing your education in this student loan resource from Citizens Bank.



Accrued Interest

Interest that accumulates on a loan. On a simple interest college loan, the interest is calculated daily on the unpaid principal balance and becomes accrued interest.


The process of gradually reducing the education loan amount to zero through regularly scheduled payments of principal and interest spread over a predetermined length of time.

Applicant Self-Certification Form

This form is required to obtain a private student loan. The purpose of the self-certification is to provide the loan terms and conditions to the student borrower. It requires the student to provide information about their college financial need to the bank, prior to the disbursement of funds.

APR (Annual Percentage Rate)

The annual cost of an education loan, including interest and any fees, expressed as a percentage. The APR is the cost of normal interest and those fees over time expressed as an interest rate relative to the rate you are paying on your education loan.

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An individual who obtains money from a lending institution/creditor via an extension of credit for a period of time. The borrower signs a promissory note or other form of agreement as evidence of the debt.

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Campus-Based Aid

Financial aid programs that are administered by a college or university. Campus-based aid programs could include federal work study, Perkins Loans, and the Federal Supplemental Educational Opportunity Grant (FSEOG).


Under certain circumstances, the balance of a student loan might be canceled (in part or in full) prior to the disbursement of funds. This only applies to funds that have not been disbursed.

Capitalized Interest

Outstanding unpaid, accrued interest added to the principal amount of the loan. When this is done, the principal amount and total amount to be paid on the loan have increased.


Verification by a financial aid administrator of a student's eligibility in order for them to receive financial aid.

COA (Cost of Attendance)

The total costs of direct and indirect expenses for one academic year as determined by the school.

Collection Agency

A company engaged by a creditor to perform collection activity on defaulted student loans.

Consolidation Loan

The process of combining one or more loans into a single new loan.

Cosigner (also known as Co-borrower)

When a student borrower has insufficient or no credit history, a creditworthy individual may be necessary to obtain the education loan. This individual, called a cosigner (or co-borrower), is equally responsible to repay the education loan if the student borrower defaults.

Credit Score

A score provided to lenders by credit-reporting agencies based on the applicant's history of repaying debt.

Credit Bureau

An agency that collects and distributes credit and personal information to creditors. A credit report includes payment history on loans and other credit accounts (such as credit cards), account balances, and length and place of employment. Any default information on education loans appears on a credit report for as long as seven years.


Subjective evaluation and determination by individual creditors based upon the requirements for the particular loan program. A good credit history is a major factor in meeting those requirements.

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The failure of a borrower to make an installment payment(s) in accordance of terms of the promissory note. Regardless of default, the borrower is still obligated to repay the debt.

Default Fee (also known as Guarantee Fee)

Fee paid to the guarantor of a federal student loan to offset the costs of collection and defaults. The fee is a percentage of the loan amount. The lender deducts the fee from the loan amount and remits it to the guarantor.


A temporary postponement of education loan payments after meeting certain criteria.


Reported status on a loan when a borrower fails to make a required payment by the due date.

Dependent Student

Students who rely on their parent(s) or legal guardian(s) for support and do not meet the federal criteria of an independent student.

Direct Expenses

The total cost for attending a college or university including tuition, and room and board. Direct expenses can also include annual fees for activities and a meal plan which are typically rolled into tuition.


When loan proceeds are disbursed to the school by the lending institution on behalf of the student for educational expenses. Proceeds will be sent directly to the school via check or Electronic Funds Transfer (EFT), depending on the school's preference.

Disclosure Statement

This document contains the exact terms of the loan, including the number of payments to be paid, interest rate, payment due date, and monthly payment amount.

Discretionary Income

For Income-Based Repayment and Pay As You Earn plans, discretionary income is the difference between income and 150% of the poverty guideline. For Income-Contingent Repayment, it is the difference between your income and 100% of the poverty guideline.

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EFC (Expected Family Contribution)

The number resulting from filing your FAFSA (Free Application for Federal Student Aid) which determines your federal eligibility of aid. It is provided on the Student Aid Report (SAR). The EFC is the amount that a family is expected to contribute toward a dependent child's tuition. This amount is covered either in family savings or can be financed with private student loans.

Eligible Cost (expense)

Money that you directly spend on education, such as tuition. For purposes of federal loans, items such as books and activity fees qualify only if they must be paid to the school in order to enroll.

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FAFSA (Free Application for Federal Student Aid)

The application used for a student to apply for federal student aid. Students may apply at Any student who applies for financial aid must file their FAFSA as soon as possible after January 1st of the year they plan to enter school.

Federal Direct Loan Program

Stafford and PLUS Loans that eligible students or parents borrow directly from the US Department of Education for educational loan purposes as administered by the financial aid office.

Federal Direct PLUS Loans

A credit-based education loan taken out by parents (on behalf of their child attending college) or by graduate students for graduate-level studies. For the parent loan, the parent is the borrower and the student must be considered dependent. For the graduate loan, the student is the borrower and must be considered independent. The amount borrowed is certified by the school for both parent and graduate borrowers.

Federal Direct Subsidized Stafford Loan

Education loan where the student is the borrower and meets certain eligibility requirements. Interest is subsidized (paid) by the government while the student attends school at least half-time and during the six-month grace period. This loan is based on financial need, and it must be certified by your school's financial aid office.

Federal Direct Unsubsidized Stafford Loan

Education loan where the student is the borrower and meets certain eligibility requirements. The student is responsible for the interest on the loan from the time of disbursement although it may be deferred. This loan is not based on financial need, and it must be certified by your school's financial aid office.

Financial Aid Package

The documents that outline monetary assistance that a student can receive, including federal aid and loans as listed in an award letter provided by a college or university.

Financial Hardship

A situation where the borrower is experiencing financial difficulty, under which they might be granted an economic hardship deferment or forbearance.

Fixed Interest Rate

An education loan with an interest rate that will remain constant for the entire term of the loan.


A special arrangement between the borrower and lender (at the lender's option) that allows the borrower to temporarily stop or defer making college loan payments, obtain an extension for making the payments, or make smaller payments than originally scheduled for a specific period of time.


Under certain circumstances, the Federal Government will cancel all or part of an educational loan. Certain military or government service, disability, or death are common reasons for loan forgiveness. It means you are no longer obligated to pay all or part of the loan.

FSEOG (Federal Supplemental Educational Opportunity Grant)

FSEOG is a need-based, undergraduate grant program that is funded by the federal government.

FWS (Federal Work-Study) Program

The FWS Program provides funds that are earned through part-time employment to assist students in financing the costs of postsecondary education.

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Grace Period

The period before the borrower begins repaying the education loan or the additional period of time that a lender provides for a borrower to make payment on a debt without penalty.

Graduated Repayment Plan

The Graduated Repayment Plan is an option for federal and direct loans which offer lower initial payments that escalate every few years over a 12-to 30- year period. The monthly payment can be no less than 50% and no more than 150% of the monthly payment under the standard repayment plan. The monthly payment must be at least the interest that accrues and also be at least $25. Graduated Repayment extends the term of the loan and increases the total amount of interest repaid over the lifetime of the loan.

Graduate/Professional Student

Any student enrolled in a graduate or professional program and classified as a graduate student.

Guarantee Agency or Guarantor

Guarantee agencies insure federal student loans against default. If the borrower defaults, dies, or becomes totally and permanently disabled, the guarantee agency reimburses the lender for the balance remaining on the loan.

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Income-Driven Repayment Plans

Repayment options for federal loans that tailor monthly payment amounts to a borrower's income. Eligibility requirements and repayment period lengths vary according to the terms of each plan. Borrowers could qualify for one of the following income-driven repayment plans: the Income-Based Repayment (IBR) Plan, the Income-Contingent Repayment (ICR) Plan, the Income-Sensitive Repayment (ISR) Plan or the Pay As You Earn Repayment Plan.

Independent Student

An independent student as determined by the Federal Government for financial aid purposes 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. To decide whether your parents' financial information is required on the FAFSA, the federal government uses criteria such as your age, marital status, and whether you're an undergraduate or graduate student to determine whether you are an independent student. If you are dependent, you must report your parents' income on the FAFSA even if you do not receive money from them.

Indirect Expenses

Aside from direct costs, there are additional smaller expenses that are a factor when calculating the total cost for college. These include items such as books and school supplies, computers and lab fees, transportation and travel expenses getting to and from school, personal expenses such as entertainment and laundry, and child care.


The fee charged to borrow money over time.

Interest Rate Factor

The daily interest on your loan. To calculate the interest rate factor, divide your interest rate (APR) by 365.25 (the number of days in a year, including a quarter day for Leap Year).

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The bank, savings and loan, credit union, US Department of Education, school or creditor from which you obtained your education or other type of loan.

LIBOR (London Inter-Bank Offer Rate)

This is the interest rate that London banks charge each other for loans, which is then used as a benchmark rate for banks all over the world. If you have an adjustable interest rate, the LIBOR may be the interest rate index that your lender uses to determine your interest rate. When LIBOR goes up, your rate will rise along with it, if you have an adjustable rate on your loan.

Lifetime Aggregate Borrowing Limit

Total (combined graduate and undergraduate loans) a student can take out. Some federal loan programs limit the total you can borrow over the course of your education. The government periodically increases these limits to reflect rising costs of education. Most private loans also have a limit to the total you can borrow over the course of your education.

Loan Period

The time frame that the loan will be used for, usually based on the academic year.

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Maturity Date

The date upon which the loan, evidenced by a promissory note or loan repayment, becomes due and payable.

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Parent of Dependent Student

The parent or legal guardian of a student who does not meet the federal criteria of an independent student.

Pell Grant

These federal grants are given to financially needy undergraduates. The amount you are given depends not only on how much money you need, but also on the cost of your school and whether you're going full-time.

Pell Grant Program

The Federal Pell Grant Program provides need-based grants to low-income undergraduate and certain post-baccalaureate students to promote access to postsecondary education. Students may use their grants at any one of the participating postsecondary institutions. Grant amounts are dependent on the student's expected family contribution (EFC), the cost of attendance, the student's enrollment status (full-time or part-time), and whether the student attends school for a full academic year or less.

Perkins Loan

This low-interest, federal student loan is based on financial need. It is obtained directly from the school, and no interest accumulates while students are in school and during their nine-month grace period.

Preferred Lender (also known as Recommended Lender)

Institutions that have demonstrated a strong commitment to servicing the business of the college or university and, thus, have earned its recommendation. They're selected by the school on the basis of their strength in such areas as prompt and knowledgeable customer service, ease of application process, technical support, and fast, simple approval processes.


When a loan is prepaid in part or in full prior to the loan maturity date. There is typically no penalty associated with doing this, although we recommend that you check with your lender or review your promissory note. As a result, you may save yourself significant interest.

Prime Rate

This is one of the benchmark rates that banks use as a basis for calculating interest rates on loans. You may hear about an adjustable rate being equal to prime rate plus a certain percentage.


Principal is the face value of the loan, or the amount borrowed, upon which interest is charged.

Principal Balance

The amount remaining after subtracting the payments made against the original principal.

Private Loans (also known as Alternative Loans)

Loans offered by banks, credit unions, and other creditors that are not guaranteed by the Federal Government. Private student loans, which are sometimes called alternative loans, can help fill the gap to cover education-related expenses after all federal financial aid has been exhausted.

Promissory Note/Loan Agreement

A legal agreement signed by the borrower and cosigner, if applicable, to repay a lender an amount of money over a specified period of time. The note includes all terms and conditions of the loan.

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Repayment Schedule

Information provided as part of a loan disclosure statement that details the loan repayment plan. The schedule includes details such as the number of payments, the amount of each payment, due dates, and finance charges.

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SAR (Student Aid Report)

Generated by the Federal Government after the Free Application for Federal Student Aid (FAFSA) is submitted, the federal government will mail the SAR to the student, as well as to the college. This report helps the college financial aid office develop a financial aid package for the student.


A portion of disposable income that has not been spent on consumption of consumer goods, but rather accumulated or invested.


A form of financial aid that does not have to be repaid. College scholarships can be given based on a variety of criteria, ranging from academic merit to the student's financial need.

Separation Date

The point when a borrower graduates, leaves school, or drops to less than half-time attendance. This change in status usually triggers the beginning of the loan's grace period and, thus, repayment.


The company that handles all the billing, record keeping, and paperwork on the repayment of your education loans on behalf of the lender or holder of the loan.

Standard Repayment Plan

Of the repayment options available to student loan borrowers of federal loans, the most familiar is the Standard Repayment Plan, which requires fixed monthly payments for 10 years.

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The length of time allowed to repay an education loan.

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Variable Interest

Rate of interest that is tied to a certain index (depending on the loan), which changes periodically as the index changes. Typically provided to a borrower in the promissory note/loan agreement.

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Wage Garnishment

Withholding a specific amount of money from a borrower's wages to satisfy delinquent debt. Wage garnishments continue until the entire debt is paid, or other arrangements are made to pay off the debt.

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