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GLOSSARY OF COMMON LOAN TERMS

Capitalized interest: Capitalization means that a lender adds the interest that accumulates on a loan to the outstanding principal balance, increasing the total amount owed (or the balance) on the loan. After that, interest is charged on the new total principal balance.

Default: Failure to repay a loan according to the terms of the promissory note.

Deferment: A postponement of payment on a loan that is allowed under certain conditions and during which interest does not accrue for Subsidized loans.

Delinquent: A loan is delinquent when loan payments are not received by the due dates. A loan remains delinquent until the borrower makes up the missed payment(s) through payment, deferment or forbearance. If the borrower is unable to make payments, he should contact his loan servicer to discuss options to keep the loan in good standing.

Discretionary Income: Your income minus the poverty guidelines for your family size.

Forbearance: A period during which your monthly loan payments are temporarily suspended or reduced. You may qualify for a forbearance if you are willing but unable to make loan payments due to certain types of financial hardships.

Grace Period: Time allotted after borrowers graduate, leave school, or drop below half-time enrollment, before payments are due.  Typically grace periods for Stafford loans are 6 months. Each loan only has one grace period. If borrower returns to school after the grace periods has expired, the borrower’s loans do not receive an additional grace period. Borrower may be eligible for in-school deferment while enrolled at least half-time, but loans return to repayment after leaving school.

Guaranty Agency: The organization that administers the FFEL program in your state.

Interest: A loan expense charged for the use of borrowed money. Interest is paid by a borrower to a lender. The expense is calculated as a percentage of the unpaid principal amount of the loan.

Lender: The organization that made the loan initially could be a bank, credit union or other lending institution for loans under the FFEL program; or the U.S. Department of Education for loans under the Direct loan program.

Loan Servicer: A company that collects payments on a loan, responds to customer service inquiries, and performs other administrative tasks associated with maintaining a loan on behalf of a lender. If you're unsure of who your servicer is for your federal loans, you can find out at www.nslds.ed.gov.

Master Promissory Note: A binding legal document that you must sign when you get a federal student loan. The MPN can be used to make one or more loans for one or more academic years (up to 10). It lists the terms and conditions under which you agree to repay the loan and explains your rights and responsibilities as a borrower. It's important to read and save your MPN because you'll refer to it later when you begin repaying your loan or at other times when you need information about provisions of the loan, such as deferments or forbearances.

Principal: The total sum of money borrowed. Loan principal includes the original amount borrowed plus any interest that has been capitalized.