TERMS ALL BORROWERS SHOULD KNOW

Accrued Interest – Interest that accrues on the loan and is payable by the borrower or, in the case of subsidized Federal Stafford Loans, by the federal government during in-school, grace and deferment periods.

A nnual Percentage Rate (APR) – A percentage calculation that reflects the total cost of a loan (interest plus all fees) on an annual basis.

Capitalization of Fees and Interest – Fees and accrued interest on a loan are added to the principal balance.  Both then become part of the principal balance and begin to accrue interest.

Default – The failure of a borrower either to make installment payments when due or to comply with other terms of the promissory note.

Deferment – A period during which the repayment of the principal amount of the loan is suspended as a result of the borrower meeting one of the requirements established by law and/or contained in the promissory note.  During this period, the borrower may or may not have to pay interest on the loan.

Deferred Interest – Interest that accrues, but on which payment is delayed until a later date.  Such deferred  (accrued) interest may be capitalized.

Disclosure Statement – A statement of the actual loan costs, including the interest rate and any additional fees, which is presented to the borrower at he time the loan is made.

Entrance Interview – A loan repayment and debt management counseling session, required by federal regulations, for students who are receiving their first federally guaranteed student loans.  This counseling session must be conducted before the student can receive the proceeds for the first disbursement of any federally guaranteed education loan.

Federal Stafford Loans – a federal education loan issued by a participating lender.  There are two types, subsidized and unsubsidized.  Subsidized Federal Stafford Loans are based on need and, the federal government pays the interest while the student is in school.  Unsubsidized Stafford Loans are not based on need and the borrower is responsible for the interest.

Guarantee Fee / Insurance Premium – A percentage of the principal charged to the borrower by the guarantor to insure a lender against loss resulting from a borrower’s failure to repay.

Guarantor – A state agency or private, nonprofit institution or an organization that insures lenders against losses due to a borrower’s default, death, disability or bankruptcy.

Interest – A charge for the use of money.  Interest is calculated as a percentage rate of the loan principal.  The interest rate charged can be fixed, which means it does not change over the life of the loan…OR… the interest rate can be variable, in which case, it changes periodically.  The percentage rate may be tied to one of several indexes such as the Prime Rate or the U.S. Treasury Bills.

Lender – The bank, saving and loan, credit union, or other approved entity from which the borrower obtains a loan.

Loan Period – The academic year or portion thereof for which the applicant is enrolled and is seeking one or more loans.

Master Promissory Note (MPN) – A legal document signed by the borrower when obtaining a loan.  It lists the conditions under which the loan is made and the terms under which the borrower agrees to repay the loan.

Origination Fee – A processing fee that is calculated on the principal amount borrowed and is charged to the student by the lender.  This fee is normally deducted from the amount of the loan proceeds.

Principal – Principal refers to the total amount borrowed plus any capitalized fees and interest.

Secondary Market – A lender, agency or institution that buys educational loans from the originating lenders or other holder.  Lenders sell educational loans to secondary markets to replenish and generate capital for their continuing operations, including making additional loans.

Servicer – Many lenders and secondary markets hire companies that specialize in student loans to handle billing, collections, deferments, etc.  Student loan accounts are often assigned to a servicer.