Loan Term Definitions

Auto-debit. Repayment of a loan by auto-debit occurs when the borrower sets up an agreement with the loan servicer to deduct monthly loan payments directly from the borrower’s bank account. Lenders may offer a slight interest rate deduction for this type of payment.

Bar Loan. A private loan product used to pay for the expenses of taking a bar exam. These may include the cost of the exam, a preparatory course and living expenses. These loans are generally obtained by 3Ls, 4Es and recent alumni. Bar loans may need to be certified by a financial aid counselor.

Capitalization. A term used to describe a method of computing interest. To capitalize a loan means to add all interest that has accrued to the principal loan amount. Once a loan is capitalized, the new loan amount (both principal and interest) is the amount upon which interest will accrue.

Co-signer/Co-borrower/Endorser. An additional applicant added to a loan to meet creditworthiness guidelines, often a parent. A co-signer/co-borrower has the same legal responsibility on the loan as the primary borrower.

Credit-Based. Credit-based lending considers past credit history and income to determine eligibility for a loan. Repayment history, delinquencies, and length of time accounts have been established are considerations in determining a borrower's ability to obtain a loan. The credit history of both the student (if he or she has a credit history) and the co-applicant will be reviewed. Federal Direct Graduate PLUS and private loans are credit based.

Credit Score. Your credit score is a number based on the information in your credit file that shows how likely you may be to pay a loan back on time — the higher your score, the less risk you represent.

Death and Disability provisions ensure that upon death or total and permanent disability the federal loans will be discharged and the student will no longer be obligated to repay their loans. Private loans are not automatically discharged upon death or total and permanent disability. Private lenders would either collect from the student's estate or, if a co-applicant is present, the co-applicant. The loan would be discharged by the private lender only after the co-applicant and the student’s estate had both been unsuccessfully sought for payment.

Deferment. Deferment is a postponement of payment on a loan that is allowed under certain conditions such as enrollment in a degree seeking program. No payment would be required while in deferment. Many private lenders offer deferment, but it is usually only for 6 or 9 months after you have withdrawn or graduated from an institution. If you were to enroll in another program, your private loan would not defer again.

Endorser. If a student is denied a Federal Direct Graduate PLUS Loan due to adverse credit they will be given the opportunity to re-apply with a credit worthy endorser. The endorser is considered a co-borrower. If the student chooses to later consolidate the loan with Federal Direct, the endorser will be removed from the Loan.

Enrollment Status. Your educational institutions own classification of your attendance, important to your eligibility for student loans. Federal Stafford, Graduate PLUS, and private loans require that you be enrolled at least half time.

Fixed Interest Rate. This is an interest rate which remains the same throughout the life of the loan, through repayment.

Forbearance. A postponement of payment on a loan, typically if the borrower doesn't qualify for a deferment and is unable to make payments for a reason such as poor health or unemployment. Even though interest continues to accrue during forbearance, using forbearance does not adversely affect your credit history. Your loan will remain in "good standing" and avoid default by using this benefit. You are eligible for up to 36 months of forbearance on all federal loans. While some private loan lenders offer a forbearance provision, a student's ability to obtain a forbearance is often difficult and only available for a period of 6 months. Also, private lenders may change the terms upon which forbearance is granted at any time.

Grace Period. The length of time a borrower is granted before the first payment is due. Grace period may refer to the time between disbursement of funds and the first payment if immediate repayment is required, or the length of time from the end of a deferment period to the first payment.

Guarantee Fee. A fee charged for federally backed student loans. Also normally deducted from the gross loan proceeds and paid on your behalf by your lender to the guarantor.

Interest. Money paid for money borrowed. Most interest is computed using a percentage of the outstanding balance of the loan over time.

LIBOR. (London Interbank Offered Rate). LIBOR represents an average of the interest rates on dollar-denominated deposits, also known as Eurodollars, traded between banks in London. LIBOR is among the most common of benchmark interest rate indices used to make adjustments to variable rate loans.

Origination Fee. The fee, charged by the lender, for services provided in connection with the origination and funding of the loan.

Pre-Payment Penalty. A fee charged by a lender for early pay off of a loan. Federal Direct Student Loans do not have a pre-payment penalty. Please check the terms if you are seeking a private educational loan.

Prime Rate. The Prime Rate is defined by The Wall Street Journal as "The base rate on corporate loans posted by at least 75% of the nation's 30 largest banks." A good website to check loan rates is http://www.primerate.net.

Servicer. Your loan is assigned to a loan servicer by the U.S. Department of Education after your entire loan amount is disbursed (paid out). The loan has been disbursed when your school transfers your loan money to your school account, gives money to you directly, or a combination of both. Your loan is usually disbursed in at least two payments.

Subsidized (Stafford loan). This loan has its interest paid by the federal government during the in-school (at least half-time enrollment) period, and for six months after graduation or a drop to less than half-time enrollment. The FAFSA (Free Application for Student Aid) is used to determine how much subsidized Stafford loan a student may borrow. Stafford subsidies ceased to be available to graduate students as of July 1, 2012.

Unsubsidized (Stafford loan). As of July 1, 2012, all graduate school Stafford loans are unsubsidized, i.e., interest begins to accrue at disbursement. The annual $20,500 Stafford has a variable interest rate, determined each July 1.

Variable Interest. An interest rate that may change depending on the terms of the loan.

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