Rhode Island Higher Education Assistance Authority: Glossar of Loan Terminology

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Academic Year: The period during which school is in session, consisting of at least 30 weeks of instructional time. The school year typically runs from the beginning of September through the end of May at most colleges and universities.
Accrue: To accumulate
Bachelor's Degree: The undergraduate degree granted by four-year colleges and universities.
Borrower: The person who receives the loan
Cost of Attendance: The cost of attendance (COA), also known as the cost of education or "budget", is the total amount it should cost the student to go to school. This amount includes tuition and fees, room and board, and allowances for books and supplies, transportation and personal and incidental expenses. Loan fees, if applicable, may also be included in the COA. Child care and expenses for disabilities may also be included at the discretion of the financial aid administrator. Schools establish different standard budget amounts for students living on-campus, married and unmarried students, and in-state and out-of-state students.
Credit Rating: A credit rating is an evaluation of the likelihood of a borrower to default on a loan.

Credit Bureaus and Credit Reporting Agencies provide credit information to creditors, such as banks and businesses, to help them decide whether to issue a loan or extend credit. This information may include your payment history, a list of current and past credit accounts and their balances, employment and personal information, and a history of past credit problems.

People who make all their payments on time are considered good credit risks. People who are frequently delinquent in making their payments are considered bad credit risks. Defaulting on a loan can negatively impact your credit rating.

A good credit rating is not required for most educational loans, with the exception of the PLUS Loan. However, students who have defaulted on previous educational loans may be required to agree to repay the loan and begin making payments before they can become eligible for further Federal aid.
Default: A loan is in default when the borrower fails to pay several regular installments on time (i.e., payments overdue by 180 days) or otherwise fails to meet the terms and conditions of the loan. If you default on a loan, the university, the holder of the loan, the state, and the federal government can take legal action to recover the money, including garnishing your wages and withholding income tax refunds. Defaulting on a government loan will make you ineligible for future federal financial aid, unless a satisfactory repayment schedule is arranged, and can affect your credit rating.
Delinquent: If the borrower fails to make a payment on time, the borrower is considered delinquent and late fees may be charged. If the borrower misses several payments, the loan goes into default.
Dependency Status: A student's dependency status determines to what degree the student has access to parent financial resources. A parent refusing to provide support for their child's education is not sufficient for the child to be declared independent.

An independent student is one who is at least 24 years old as of January 1 (e.g., born before January 1,1984 for academic year 2007-2008), is married, is a graduate or professional student, has a legal dependent other than a spouse, is a veteran of the US Armed Forces, or is an orphan or ward of the court (or was a ward of the court until age 18). All other students are considered dependent.
Disbursement: Disbursement is the release of loan funds to the school for delivery to the borrower. The payment will be made co-payable to the student and the school. Loan funds are first credited to the student's account for payment of tuition, fees, room and board, and other school charges. Any excess funds are then paid to the student in cash or by check. Unless the loan amount is under $500, the disbursement will be made in at least two installments.
Eligible Non-Citizen: Someone who is not a US citizen but is nevertheless eligible for Federal student aid. Eligible non-citizens include US permanent residents who are holders of valid green cards, US nationals, holders of form I-94 who have been granted refugee or asylum status, and certain other non-citizens. Non-citizens who hold a student visa or an exchange visitor visa are not eligible for Federal student aid.
Federal Processor: The Federal Processor is the organization that processes the information submitted on the Free Application for Federal Student Aid (FAFSA) and uses it to compute eligibility for federal student aid. The processing results are sent to the applicant, the schools the applicant lists on the FAFSA and the applicant's state financial aid agency (unless the applicant indicates on the FAFSA that results should not be sent to the state agency).
Federal Work-Study: The Federal Work-Study (FWS) program provides undergraduate and graduate students with part-time employment during the school year. The federal government pays a portion of the student's salary, making it cheaper for departments and businesses to hire the student. For this reason, work-study students often find it easier to get a part-time job. Eligibility for FWS is based on need. Money earned from a FWS job is not counted as income for the subsequent year's need analysis process.
Free Application for Federal Student Aid: The Free Application for Federal Student Aid (FAFSA) is used to apply for Pell Grants and all other Federal need-based aid. You can file a FAFSA on the internet at http://www.fafsa.ed.gov. As the name suggests, no fee is charged to file a FAFSA.

When filing a FAFSA, be sure to use an original form, not a photocopy. Photocopies of the form are unacceptable because photocopying alters the alignment of the forms, interfering with the imaging technology the federal processors use to process the forms.
Grace Period: The grace period is a short time period after graduation during which the borrower is not required to begin repaying his or her student loans. The grace period may also kick in if the borrower leaves school for a reason other than graduation or drops below half-time enrollment. Depending on the type of loan, you will have a grace period of six months (Stafford Loans) or nine months (Perkins Loans) before you must start making payments on your student loans. The PLUS Loans do not have a grace period.
Graduated Repayment: Under a graduated repayment schedule, the monthly payments are smaller at the start of the repayment period, and gradually become larger.
Grant: A grant is a type of financial aid based on financial need that the student does not have to repay.
Guarantee Agency or Guarantor: Guarantee agencies are responsible for approving student loans and insuring them against default. Guarantee agencies also oversee the student loan process and enforce federal and state rules regarding student loans.

If a borrower defaults on an educational loan, the guarantee agency assumes responsibility for collecting the loan and repays the lender, usually at 95 cents on the dollar. This means that guaranteed educational loans are extremely low-risk loans for the lender, despite being unsecured.

Each state has a different guarantee agency that administers the Federal Stafford and PLUS loans for students in that state. There are 35 guarantee agencies for educational loans in the United States. The state guarantee agency is the best source of information about FFELP loan program (e.g., loan limits and interest rates), each state may set additional restrictions on the loans, within federal guidelines.
Half-Time: Most financial aid programs require that the student be enrolled at least half-time to be eligible for aid. Some programs require the student to be enrolled full-time. Half-time is at least 6 credit hours or twelve clock hours per semester; full time is at least twelve semester hours or twenty four clock hours per semester.
Holder: The holder is the lender, institution, or agency that holds legal title to a loan. The holder may be the bank that issued the loan, a secondary market that purchased the loan from the bank, or a guarantee agency if the borrower defaulted on the loan.
Interest: Interest is an amount charged to the borrower for the privilege of using the lender's money. Interest is usually calculated as a percentage of the principal balance of the loan. The percentage rate may be fixed for the life of the loan, or it may be variable, depending on the terms of the loan. As of July 1, 2006, all new federal loans use a fixed interest rate that is associated with the cost of US Treasury Bills.
Internship: An internship is a part-time job during the academic year or the summer months in which a student receives supervised practical training in their field. Internships are often very closely related to the student's academic and career goals, and may serve as a precursor to professional employment. Some internships provide very close supervision by a mentor in an apprenticeship-like relationship. Some internships provide the student with a stipend, some do not.
Lender: A lender is a bank, credit union, savings and loan association, or other financial institution that provides funds to the student or parent for an educational loan.
Loan: A loan is a type of financial aid which must be repaid, with interest. The federal student loan programs (FFELP and FDSLP) are a good method of financing the costs of your college education. These loans are better than most consumer loans because they have lower interest rates and do not require a credit check or collateral. The Stafford and Perkins Loans also provide a variety of deferment options and extended repayment terms.
Need: The difference between the COA and the EFC is the student's financial need -- the gap between the cost of attending the school and the student's resources. The financial aid package is based on the amount of financial need. The process of determining a student's need is known as need analysis.

Cost of Attendance(COA) - Expected Family Contribution(EFC) = Financial Need
Need-Based: Financial aid that is need-based depends on your financial situation. Most government sources of financial aid are need-based.
Repayment Terms: The term of a loan is the period during which the borrower is required to make payments on his or her loans. When the payments are made monthly, the term is usually given as a number of payments or years.
Satisfactory Academic Progress: A student must be making Satisfactory Academic Progress (SAP) in order to continue receiving federal aid. If a student fails to maintain an academic standing consistent with the school's SAP policy, they are unlikely to meet the school's graduation requirements.
Scholastic Assessment Test (SAT): The SAT is one of the two national standardized college entrance examinations used in the US. The other is the ACT. The SAT is administered by the Educational Testing Service (EST). Most universities require either the ACT or the SAT as part of an application for admission.
Variable Interest: In a variable interest loan, the interest rate changes periodically. For example, the interest rate might be associated with the cost of US Treasury Bills (e.g. T-Bill rate plus 3.1%) and be updated monthly, quarterly, semi-annually, or annually.

Last Modified: May 29, 2007 02:05:54 PM

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