Borrower: A person who is legally responsible for a loan obtained
from a bank or other lender.
Capitalization of Interest: The addition of unpaid interest to the
principal balance of a loan. This can increase the total outstanding principal
amount.
Cohort Default Rate: The percentage of loan borrowers who default before
the end of the academic fiscal year following the fiscal year in which they
entered repayment on their loans.
Consolidation: The process of a bank paying off a borrower’s current
student loans and issuing a new, single loan. The monthly payment is usually
lower because the repayment term is longer.
Default: Failure to meet a financial obligation, such as a loan.
Deferment: A period in which a borrower is allowed to postpone payments
on the loan principal. During deferment, the federal government pays the interest
on a subsidized Stafford Loan. On other loans, the interest accrues and is
capitalized, and the borrower is responsible for paying it.
Delinquency: Failure to make loan payments when due. Delinquency can
lead to default.
Disbursement: A release of funds to the school for delivery to the
borrower. This is done either electronically or with a check.
Entrance/Exit Interview: Required counseling sessions that the federal
student loan borrower must attend before receiving the first loan disbursement
and again before leaving the postsecondary school.
Financial Aid Package: The financial aid office of a college or university
determines financial aid packages. The packages can include a combination
of grants, scholarships, loans and work-study.
Forbearance: A special agreement between bank and borrower to delay
or reduce monthly loan payments because of financial hardship.
Free Application for Federal Student Aid (FAFSA): The official application
students must use to apply for federal aid.
Grace Period: A specified period of time between graduation and the
time loan repayment begins for the borrower.
Guaranty Agency: An organization, like NELA, that insures student loans
for banks and administers the student loan insurance program for the federal
government.
Guarantee Fee: Insurance fee that the guaranty agency may charge a
borrower. This fee, no more than 1 percent, is deducted from the loan principal
amount before the borrower receives the loan funds.
Lender: An organization, financial institution, agency or school that
provides money to a student on the condition that it will be returned.
Origination Fee: A fee charged to the borrower (usually 3 percent)
by the federal government that is deducted from the principal of a loan prior
to disbursement.
Repayment: The period in which a borrower takes on the responsibility
of repaying the loans that helped finance the cost of education.
Secondary Market: An organization that buys loans from banks or other lenders.
This purchase of loans frees funds and allows lenders to make additional loans
to students.
Servicer: An organization that maintains a borrower’s loan account
records.
