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Definition of Terms

Cap: The maximum allowable interest rate that can be charged in a loan program, regardless of economic fluctuations.

Capitalized: The term that refers to the adding of unpaid interest that accumulated during an in-school, grace, or deferment period to the principal balance. This will increase the principal balance.

Deadlines: Deadlines are to be watched carefully. There are deadlines for submitting your Free Application for Federal Student Aid (FAFSA), paying deposits, bills, etc.

Deferment: The deferment period is a period of delayed payments such as when a student is in-school and if there is financial hardship after graduation.

Disbursement: The process of sending the loan proceeds to the school’s bursar’s office. Disbursements usually coincide with the beginning of each semester.

Electronic Funds Transfer (EFT): The process of disbursement that sends the loan proceeds electronically to the school’s bursar’s office. This eliminates the need to come into the office and endorse a check.

Federal Direct PLUS Loan: This is the Federal Direct Parent Loan for Undergraduate Students. Graduate students are also eligible to apply for PLUS loans.

Federal Direct Loan Program: The most common federal education loan available today. It is in the student’s name and guaranteed by the U.S. Department of Education in cases of default.

Fees: Amount charged by the federal government and guarantee agencies on Federal Direct/Stafford Loans. Two types of fees are charged on these loans: the Origination fee, which can be as high as 3%, and the Guarantee or insurance fee, which can be as high as 1%.

Financial Need: This is the difference between the cost of attendance (COA) and expected family contribution (EFC) as determined by the federal government using data collected on the FAFSA.

Grace Period: The payment-free period that follows the student’s graduation, withdrawal, or dropping below half-time enrollment status.

Half-Time: An enrollment status that normally is 6 credit hours for an undergraduate, but is always determined by the school’s academic policies.

In-School: The period when a student is enrolled on at least a half-time basis. No payments are required; however, interest does accumulate for unsubsidized borrowers.

Interest: The cost paid by the government (for subsidized borrowers during subsidized periods) or by the borrower during the time the loan is outstanding.

Interest Rate: The rate which is charged for use of the money. Typcially expressed as an annual percentage of the principal.

LIBOR: The London Inter-Bank Offered Rate is fixed on a daily basis by the British Banker's Association.

Loan Consolidation: The federal loan program that allows a borrower to combine all their federal loans and refinance them, possibly over a longer term (up to 30 years) based on amounts borrowed.

Repayment Period: The period of time where principal and interest payments are required.

Satisfactory Academic Progress: The term used by schools to determine if a student is meeting the minimum requirements for matriculation, which is based on grade point average and number of credit hours completed.

Subsidized Federal Direct Loan: The type of loan for students who have demonstrated financial need (as determined by completion of the FAFSA) to have their interest paid by the government during subsidized periods (subsidized periods include enrollment of at least half time, grace period, deferment).

Term of Loan: The number of years that a loan is in the repayment period.

Unsubsidized Federal Direct Loan: The non-need-based loan that requires the student borrower to be responsible for the interest during the in-school, grace and deferment periods. Eligibility for this loan is not based on income.