Glossary of Lending Terms

Contact

E-mail

914.395.2570

Below is an abbreviated glossary of terms used by lenders.

  • APR – Annual percentage rates calculates the cost of borrowing money. It includes the annual interest rate, insurance, and origination fees associated with lending money.
  • Borrower benefits – Special interest rates, incentives, or terms offered by an individual lender. These benefits may lower your payments or reduce your cost of alternative borrowing.
  • Capitalization – Adding unpaid accrued interest charges to the principal balance of a loan.
  • Consolidation – combining all the student’s loans into one. The student will make one payment to one lender or servicer. A consolidation loan has its own terms and conditions. Loan consolidation makes repayment easier if a student has more than one educational loan. It may also lower the student’s monthly payment. If the student chooses to do so, the repayment schedule may be extended beyond the 10-year standard. The interest rate on a consolidation loan is fixed, and the rate cannot exceed 8.25 percent.
  • Default – The borrower fails to make payments (delinquency) or arrange a deferment/forbearance 270 after repayment is scheduled to begin.
  • Deferment – A borrower may qualify to defer making payments for a specified period of time. For a subsidized loan, the interest does not accrue because the government pays it on behalf of the borrower. Deferments are available for:
    • Enrollment in undergraduate or graduate school.
    • Person with a disability enrolled in a qualifying rehabilitation program
    • Unemployment
    • Economic Hardship
    • Military Service
  • Delinquency – the status of a loan when payments are late. The servicer may charge late fees. Delinquency precedes default.
  • Disbursement date – The date the lender expects to transfer a student’s loan funds to the College.
  • Federal Direct Loan – A federal loan provided for students who are eligible based upon completion of the FAFSA; portions of the loan may be subsidized or unsubsidized.
    • Subsidized – when a federal loan is subsidized, the federal government pays the interest that accrues on the loan while the student is enrolled in school. This loan is available to undergraduate students who demonstrate financial need – as defined by the Department of Education – to help cover the costs of higher education at a college or career school.
    • Unsubsidized – when a federal loan is unsubsidized, the student is responsible for the interest that accrues while the student is enrolled in school. This loan is available to all eligible undergraduate students who complete the FAFSA. The student does not have to demonstrate need to borrow an unsubsidized loan.
    • Loan Limits – All students who complete the FAFSA may borrow: first years, up to $5,500; second years up to $6,500; third and fourth years, up to $7,500. A portion may be subsidized: for first years up to $3,500; second years, $4,500; and third and fourth years $5,500. These limits are per academic year.
  • Forbearance – Forbearance is granted by the individual lender, allowing the borrower to stop making payments during a specified period. Unlike deferment, the borrower does not need to have a reason for requesting it. However, interest will accrue. Borrowers should apply for deferment before considering forbearance.
  • Grace period – the time between the end of enrollment (graduation, leave of absence, less-than-half-time enrollment, or withdrawal) and when repayment begins. No payments are required during the grace period. Borrowers of the Federal Direct Loan have a six-month grace period before any payments are due. PLUS borrowers do not have a grace period.
  • Interest rate – the rate at which interest accrues on a loan, or the cost of borrowing money.
  • Loan/Origination fees – Fees are subtracted from the amount borrowed to cover the expenses for lending. Federal loan fees are retained by the department of education.
  • Minimum monthly payment – the lowest amount a borrower is required to pay each month during the repayment period.
  • Repayment date – The day a student borrower must begin making payments on any loans. The day following the end of the grace period.
  • Servicer – Some lenders assign educational loans to a third party, called a servicer. This company becomes responsible for collecting and processing payments for that lender.
  • Total repayment amount – The amount you borrowed plus the accrued interest.