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IMPORTANT FINANCIAL TERMS TO KNOW
Financial Need: The difference between the student’s educational costs and the Expected Family Contribution (the amount the student’s family is expected to pay).
Financial Aid Package: The total amount of financial aid a student receives, including grants, loans, federal work-study and scholarships.
Unmet Need: Difference between a student’s total cost of attendance at a specific institution and the student’s total available resources, including financial aid.
Verification: The review process in which the financial aid office requests documentation from a financial aid applicant to verify the accuracy of the application data (about 1/3 of applications are selected for verification).
Professional Judgment: Financial aid administrators can adjust a student’s aid package and contribution when extenuating circumstances exist (e.g., a deceased parent).
Federal Title IV Programs: Student aid programs given by the government such as the Pell Grant, Perkins Loan or Work-Study.
Dependency Status: If you are considered a dependent student, colleges will consider parent financial resources when figuring financial aid.
Work-Study: This federally-sponsored program provides undergraduate and graduate students with school-year partútime employment. Eligibility is based on financial need.
Grant: Type of aid that does not have to be paid back; typically based on financial need.
Merit-based Aid: Type of aid that does not have to be paid back; based on academic, artistic, athletic or other meritúoriented criteria.
Types of Federal Loans:
Stafford Loan: Federally-guaranteed, low-interest rate loan for students. A student can defer payments until he or she leaves school.
There are two types of Stafford Loans:
1. Subsidized loan: The federal government pays the interest while a student is in school (also during grace and deferment periods; see definitions at right).
2. Unsubsidized loan: Interest accrues from the first disbursement (see definition at right) until the loan is paid in full. Interest rate is variable; the student pays the interest.
Perkins Loan: Low-interest federal loan for students with exceptional financial need. This loan is subsidized and disbursed by the student’s college. The interest rate is fixed at five percent.
Loan Terms:
Annual percentage rate (APR): Interest associated with a loan. It can change or remain the same during the year and term of the loan.
Commercial lender: A financial institution that lends the funds to students and their families.
Consolidation loan: Loan that allows borrowers to lower their monthly payments by replacing their original loans with a single loan.
Co-signer: A person besides the borrower who signs a credit agreement and is legally obligated to repay the loan if the borrower does not make payments.
Default: Failure to repay your loan. This can lead to legal action by the school, the lender, the state or the federal government to recover the money.
Deferment: Temporary postponement of student loan repayment.
Delinquent: When at least one loan payment is late or missed. Serious delinquency results in default.
Disbursement: The release of funds by a lender.
Entrance/exit interview: Counseling sessions that are required for federal student loan borrowers. At many schools, these can be done online.
Fixed interest rate: A rate that remains the same from the day of the loan to the last repayment.
Forbearance: The permission to postpone, reduce or extend loan payments because of serious economic hardship.
Grace period: The time between leaving school and when payment is to begin on the loans.
Guarantor: A state agency or private, nonprofit organization that administers a student loan insurance program.
Origination fee: A charge deducted from the loan to help cover the costs of making the loan.
Principal: The full amount borrowed. During repayment, it refers to the portion of the original amount still owed.
Promissory note: A contract between borrower and lender that reflects the terms and conditions under which the borrower promises to repay the loan.
Servicer: An organization that is paid by a lender to administer their student loans.
Variable interest rate: An interest rate that can change periodically, usually annually
PLUS Loans (Parent Loans for Undergraduate Students): Federal loans available to parents of dependent undergraduate students for their child’s education. Parents can borrow money to cover any costs not already covered by the student’s financial aid package. Interest rate is variable.
- The Free Application for Federal Student Aid (FAFSAJ is the standardized application for applying for financial aid.
- Cost of Attendance (COA) is the total cost for an academic year of study (includes both direct and indirect costs). Colleges establish their own COA budgets.
- Direct Costs are tuition, fees, room and board paid directly to a college (books are included only if a textbook rental fee is charged).
- Indirect Costs vary by student and include books, supplies, personal and transportation expenses.
- Expected Family Contribution (EFC) is the amount of money a family can reasonably expect to contribute toward the cost of attendance. The EFC is calculated using a standardized formula, known as Federal Methodology. The Free Application for Federal Aid (FAFSA) is the application which collects data to determine this calculation.
- Need is defined as the difference between Cost of Attendance (COA) and the Expected Family Contribution (EFC). Need is determined by the college.
Scholarships or Grants are generally funds which don’t have to be repaid.
- Loans are funds advanced with a legal obligation for repayment.
- A Promissory Note is a legal document signed by the borrower agreeing to repay a loan according to specific terms.
- Default is the failure to repay a loan according to the terms of the Promissory Note. Defaults are recorded on a borrower~ perúmanent credit record and have long-term adverse consequences.
- Deferment is when the student loan repayment is temporarily postponed for specific circumstances.
Insurance & Origination Fees may be deducted from loan disbursements (except Perkins loans).
- Entrance/Exit Interviews are important information sessions the student borrower must attend before receiving most federal student loans and again before leaving the college. Interviews are conducted at your college’s financial aid office.
- Guarantee Agency is a state or non-profit agency who insures student loans on behalf of the federal government and lender.
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