Glossary of Student Loan Terms

Below is a Glossary of Student Loan Terms. Please have a read. If you have any Student Loan questions please Contact the I. Mark Cohen Law Group via our Contact Page or by calling 732-741-9500.

Account

A grouping of one or more Direct loans distributed by the U.S. Department of Education. Borrowers can have one or more accounts. Each account has a unique number assigned to identify it. The format of an account number is your Social Security Number (SSN) plus a one-digit identifier added to the end (e.g. 123-45-6789-1), if you receive a notice that affects all of your possible accounts, the account number on the notice may be abbreviated to the SSN only.

Accrue

The process where interest accumulates on your loan, when we speak of “interest accruing on your loan” we mean that the interest due on your loan is accumulating.

Alternative Documentation of Income (ADOI)

A form that is used to accurately identify the income level of borrowers on, or requesting to be on, the Income Contingent Repayment (ICR) or Income-Based Repayment (IBR) Plan. The alternative documentation form is used in situations when obtaining income information from the IRS is inappropriate, such as the first year or two of repayment on your loan(s) or when we are unable to obtain income information from the Internal Revenue Service (IRS).

Borrower

Individual who signed and agreed to the terms in the promissory note and is responsible for repaying loan.

Cancellation

Some student loan programs allow for all or part of the total loan principal and accrued interest to be cancelled in certain circumstances. A canceled loan may also be referred to as a “discharged loan.”

Capitalization

Adding unpaid accrued interest to the principal balance; Capitalizing interest increases the principal amount of the loan and the total cost of the loan. This occurs at the end of deferment, forbearance, or grace period, on Unsubsidized Loan and at the end of a forbearance period on a Subsidized Loan.

NOTE:

If you are repaying under the Income-Based Repayment (IBR) plan and have a partial financial hardship when a deferment or forbearance ends, accrued interest (1) will capitalize only after your partial financial hardship ends or you leave the IBR plan and (2) will not capitalize after your deferment and/or forbearance ends.

Collection costs

When a defaulted Direct Loan or FFEL is included in a Direct Consolidation Loan, collection costs of up to 18.5% of the outstanding principal and interest are added to the outstanding balance. When defaulted Perkins Loans and Health and Human Service (HHS) loans are consolidated, collection costs are also added. However, collection costs on these loans may exceed 18.5% of the outstanding principal and balance.

Consolidation

The process of combining one or more eligible educational loans into a single ne loan; the Direct Loan Program offers Direct Consolidation Loan for those borrowers who are interested in consolidating their eligible loans.

Consolidation hold

delays the processing of your Direct Consolidation Loan until closer to the end of your grace period, if any of the loans you want to consolidate are in a grace period normally, when you consolidate your existing loan(s) into a new Direct Consolidation Loan, you will be required to start repayment immediately. However, if any loan you want to consolidate is still in grace period, you can delay entering repayment on your new Direct Consolidation Loan until closer to your grace period end date by entering your expected grace period end date (month and year) in the space provide on your application. We will start processing your application about 45 days before the expected grace period end date that you provide. lf you leave the expected grace period end date blank on your consolidation application, your Direct Consolidation Loan will enter repayment immediately. You can select a date up to nine (9) months into the future. lf your grace period is more than nine (9)
months away, wait to submit our application.

Default

Failure to repay a loan according to the terms agreed to when borrower signed their promissory notes. Default occurs when a Direct Loan borrower becomes 270 days delinquent in making payments on their loan(s). The consequences of default can be severe.

Default Aversion

The activities of a guaranty agency that are designed to prevent a default by a borrower who is at least 60 days delinquent and that are directly related to providing collection assistance to the lender.

Borrower

A deferment is a temporary suspension of a borrower`s monthly loan payment. There are many different types of deferments available.

  • During deferment of subsidized loans, principal payments are postponed and interest does not accrue
  • During deferment if unsubsidized loans, principal payments are ostponed but interest continues to accrue. Accrued interest will be added to the principal balance (capitalized) on the loan(s) at the end of the deferment period. This will increase the amount borrower owes.

NOTE:

If you are repaying under the Income-Based Repayment (IBR) Plan and have a partial financial hardship when a deferment ends, interest accrued during deferment will not be capitalized until after your partial financial hardship ends or you leave the IBR plan.

Delinquent

Delinquency status indicates that borrower accounts have become past due on payment. This occurs when borrower`s loan payments are not received by the due dates. Accounts remain delinquent until borrower brings their account current with payments, deferments, or forbearances. If borrower`s accounts become delinquent and the borrower is unable to make payments, deferments, or forbearances should be considered.

Dependant Student (dependant undergraduate student)

A student who does not meet any of the criteria for an independent student; An independent student is at least 24 years old, married, a graduate or professional student, a veteran, a member of the armed forces, an orphan, a ward of the court, or someone with legal dependants other than a spouse.

Direct Loan Servicing Center

The U.S. Department of Education`s agent contracted to collect Direct Loans and handle deferments, forbearances, and repayment options.

Direct PLUS Loan (PLUS Loan)

Direct PLUS Loans are unsubsidized loans available to parents of dependant students, and to students enrolled in graduate or professional programs. These loans are available regardless of financial need and the amount eligibility depends on the total cost of education.

Disbursement

Payment of loan proceeds by the lender. During consolidation, this term refers to sending payoffs to the loan holders of the underlying loans being consolidated.

Disclosure Statement

A statement showing borrower`s loan term, payment schedule, and monthly payment amounts.

Eligible Loans

The following Federal Education Loans are eligible for consolidation into a Direct Consolidation Loan:

  • Direct Subsidized and Unsubsidized Loans
  • Auxiliary Loans to Assist Students
  • Federal Subsidized and Unsubsidized
  • Federal Perkins Loans Stafford Loans
  • National Direct Student Loans
  • Direct PLUS and Federal PLUS Loans
  • National Defense Student Loans
  • Direct Consolidation Loans and Federal
  • Health Education Assistance Loans Consolidation Loans
  • Health Professions Student Loans
  • Guaranteed Student Loans
  • Loans for Disadvantaged Students
  • Federal Insured Student Loans
  • Nursing Student Loans
  • Supplemental Loans for Students

Family Size

This number includes you and your spouse and is used to help determine your monthly payment amount for the ICR and IBR Plans. Family size includes your children if they receive more than half their support from you. For the IBR Plan, this includes children who will be born during the year you certify your family size for the IBR Plan. For the ICR Plan, family size can also include other people only if; (1) they now live with you, and (2) they now get more than half their support from you and they will continue to get this support from you. For the IBR Plan, family size can include other individuals if, at the time you certify your family size, these other individuals (1) live with you and (2) receive more than half of their support from you and will continue to receive this support for the year you certify your family size. Both ICR and IBR Plans, support includes money, gifts, loans, housing, food, clothes, car, medical and dental care, and payment of college costs.

Federal Family Education Loan Program (FFEL Program)

A Federal program authorized under Title IV of the Higher Education Act that provides loans to eligible student and parent borrowers. The program consists of Subsidized and Unsubsidized Federal Consolidation Loans. Funds are provided by private lenders such as banks, credit unions, and other private financial institutions. The loans are backed by the Federal government.

Forbearance

A period during which your monthly payments are temporarily suspended or reduced; You may qualify for forbearance if you are willing but unable to make loan payments due to certain types of financial hardships.During forbearance, principal payments are postponed but interest continues to accrue. Accrued unpaid interest will be added to the principal balance (capitalized) of the loan(s) at the end of the forbearance period. This will increase the amounts the borrower owes.

NOTE:

If you are repaying under the Income-Based Repayment (IBR) Plan and have a partial financial hardship when a forbearance ends, interest accrued during orbearance will not be capitalized until after your partial financial hardship ends or you leave the IBR Plan.

Grace Period

After borrower graduates, leaves school, or drops below half-time enrollment, loans that were made for that period of study have several months before payment is due. This period is called the “grace period”
Grace periods extend from 6 to 12 months after borrower leaves school

  • Most FFEL and Direct loans have 6-month grace periods;
  • Perkins loans have grace periods of either 6 or 9 months, depending on when the loan was first disbursed;
  • Health professional loans have grace periods of 9-12 months;
  • During the grace period, no interest will accrue on Subsidized loans;
  • Interest accrues on Unsubsidized loans during grace period, and this interest is capitalized when borrower`s loans enters repayment;
  • Borrower`s repayment period begins the day after the grace period ends. First payments will be due within 60 days after the repayment period begins;
  • Each loan has only one grace period. If borrower returns to school after the grace period has the borrower`s loan(s) qualify for deferment while borrower is enrolled but return to repayment after borrower leaves school. There is NO additional grace period.

Grace Period End Date

The date on which a grace period for a loan is expected to end

  • When applying for a Direct Consolidation Loan, a grace period end must be less than nine (9) months from the date you apply, or your Consolidation application cannot be accepted.

Half-Time

A student is considered half-time when carrying at least one half the academic workload of a full-time student as determined by the school.

Health Professions Loans

Loan program authorized by the Public Health Services Act and administered by the U.S. Department of Health and Human Services (HHS) rather than the U.S. Department of Education; although health professions loans can be included in consolidation loans, borrowers should be aware of the advantages and disadvantages of consolidating these loan types because of the difference between the programs.HHS Loans include:

  • Health Professions Loans (HPSL)
  • Loans for Disadvantaged Students (LDS)
  • Health Education Assistance Loans (HEAL)
  • Nursing Student Loans (NSL)

Holder (also holder of loans/loan holder)

A holder (loan holder) is an entity that holds a loan promissory note and has the right to collect from the borrower.

Income Contingent Repayment (ICR) Plan

A repayment plan that bases your monthly payment on your yearly income, family size, and loan amount; as your income rises and falls, so do your payments. After 25 years, any remaining balance on the loan will
be forgiven, but you may have to pay taxes on the amount forgiven.

  • Each year your monthly payment will be based on your family size, annual Adjusted Gross Income (AGI) as reported on your Federal tax return, and the total amount of your Direct Loan(s). To participate in the ICR Plan you must authorize the U.S. Internal Revenue Service (IRS) to inform the U.S. Department of Education of the amount, which will be adjusted annually to reflect changes in your AGI. If you select the ICR Plan, you will be billed for only the interest amount that accrues on your loan each month until you complete and return the required documentation. We cannot place you on ICR Plan until we receive your completed forms.

Income-Based Repayment (IBR) Plan

The Income-Based Repayment (IBR) Plan bases your monthly payment on your yearly income and you must have a partial financial hardship to enroll. This plan is an alternative to the Income Contingent Repayment (ICR) Plan and is designed to make repaying education loans easier for students who intend to pursue jobs with lower salaries, such as careers in public service.

  • Payments are determined by capping the monthly payments at a percentage of your discretionary income (the difference between your Adjusted Gross Income and 150% of the poverty guideline for your family size and state residence);
  • If you are married and file separate taxes, only your income ll be considered when calculating your IBR payment amount. Line ICR, after 25 years of qualifying repayment, any remaining balance on the loan will be forgiven, but you may have to pay taxes on the amount forgiven;
  • IBR Plan is not available for repayment of your Direct PLUS Loan(s) made to parent borrower(s) and/or Direct Consolidation Loan(s) that repaid PLUS Loans made to parent borrowers
  • If you choose to include any ineligible loans, the resulting new Consolidation Loan cannot be repaid under the IBR Plan;
  • To participate in the IBR Plan, you must authorize the U.S. Internal Revenue Service (IRS) to inform the U.S. Department of Education of the amount of your income.

NOTE:

If you choose to leave the IBR Plan at any time, your account will be placed on the Standard Repayment Plan. You cannot change to any other plan other than the Standard at any time after being on the IBR Plan.

Independent Student

An independent student is at least 24 years old, married, a graduate or professional student, a veteran, a member of the armed forces, an orphan, a ward of the court, or someone with legal dependants other than a spouse.

In-School Status

The status of a loan prior to entering the grace or repayment period.

Interest

A loan expense charged by the lender and paid by the borrower for the use of borrowed money. The expense is calculated as a percentage of the unpaid principal amount (loan amount) borrowed.

Loan(s)

Money borrowed from a lending institution or the U.S. Department of Education that must be repaid.

NSLDS

The National Student Loan Data System a centralized database that stores information on all U.S. Department of Education loans and grants. NSLDS also contains borrower`s school enrollment information. Borrowers can access this information online using their D.O.E PIN.

Out of School

Borrower is “out of school” if they are making scheduled payments on their federal education loans (repayment) or they are in a period of grace, deferment, or forbearance.

Partial Financial Hardship

A circumstance in which the annual amount due on the borrower`s eligible loans, as calculated under a 10- year Standard Repayment Plan, exceeds 15% of the difference between the borrowers Adjusted Gross income (AGI) and 150% of the poverty line income for the borrower`s family size. If you believe you have a partial financial hardship and your Direct Loan(s) are currently in repayment, you may want to repay your Direct Loan(s) under the Income-Based Repayment (IBR) Plan.

Payment Amount

The total amount of a borrower`s most recent payment.

Payment Date

The date borrower payments are received and applied to their loan accounts.

PIN

Your pin serves as your identifier to allow access to personal information in various U.S. Department of Education systems

  • Your PIN also acts as your digital signature with some online forms
  • Use your PIN to electronically sign you online Loan Consolidation Application and Promissory Note, Deferment, or Forbearance forms
  • If you do not already have a PIN, you can request one online by selecting the request a PIN button located on the left menu bar.
  • The PIN you receive will be your universal U.S. Department of Education PIN

PLUS Loan

PLUS Loans are available to parents of dependant graduate students and to students enrolled in graduate and professional programs. PLUS Loans are unsubsidized loans that accrue interest from the date of disbursement.

Prepayment

A prepayment is an amount in excess of the amount due on a loan. If borrower has more than one Direct Loan, they must specify which loan they are prepaying. Like all other Direct Loan payments, a prepayment first will be applied to any outstanding fees and charges, next to outstanding interest, and then to the principal balance of the loan(s). There is never a penalty for prepaying principal or interest on Direct Loan Program Loans.

Principal Loan Balance Outstanding (principal balance)

The total principal amount outstanding on a borrower`s Direct Loan(s). Principal balance will include the original amount(s) disbursed for the loan(s), any adjustments made to the loan disbursement amount, and any interest capitalized on the account(s).

Promissory Note

The binding legal document that a borrower signs when they obtain a loan; Promissory notes define the conditions under which funds are provided and the terms under which borrowers agree to pay back the loan. Promissory notes include information about the interest rate and about deferment and cancelation.

Reasonable and Affordable Payments

Rehabilitating a defaulted loan or making satisfactory payment arrangements requires borrower`s to make “reasonable and affordable” payments. The holder of a Direct Loan or FFEL Program Loan determines on a case-by-case basis what constitutes a reasonable and affordable payment on defaulted loans.

  • Loan holders consider disposable income and such expenses as housing, utilities, food, medical costs, work related expenses, dependent care, and other Federal education loan debt.
  • Borrower is given a written statement of the payment and an opportunity to object to those terms

Rebate (Direct Loan Up-Front Interest Rebate Program)

The amount of the up-front interest rebate given to Direct Subsidized Loan, Direct Unsubsidized Loan, and Direct PLUS Loan borrowers beginning with loans made for the 2000-2001 program year. The rebate amount is equal to 1.5% of the loan amount borrowed. Borrowers must make their first 12 required monthly payments on time or the rebate amount will be added back to the principal balance on their loans.

Refund

The total amount of the funds returned to the Direct Loan Program as unused for the student`s education.

Rehabilitation

The process of bringing a loan out of default and removing the default notation on a borrower`s credit report; to rehabilitate a Direct or FFEL Loan, a borrower must make at least nine (9) full payments of an agreed amount within twenty (20) days of their monthly due dates over a ten (10) month period. To rehabilitate a Perkins Loan, a borrower must make twelve (12), on-time, monthly payments of an agreed amount to the D.O.E. Rehabilitation terms and conditions vary for other types and can be obtained directly from loan holders.

Repayment (also repayment period)

Making payments on a loan, the “repayment period” is the period during which payments are required to be made.

Repayment Plan(s)

The Direct Consolidation Loan Program offers multiple repayment plans with various term selections

  • Standard Repayment Plan: Under this plan, borrower will pay a fixed amount of at least $50 each month for 10-30 years based on your total education indebtedness. This plan may result in lower total interest paid when compared to repayment under one of the graduated plans.
  • If borrower has not selected a repayment plan by the time repayment begins, loans will be placed on the Standard Repayment Plan;
  • Graduated Repayment Plan: Under this plan, borrower will pay a minimum payment amount at least equal to the amount of interest accrued monthly for a 10-30 year period, based on your total education indebtedness.
  • Borrower`s payments start out low, and then increase every two years.
  • Generally, the amount borrower will repay over the term of the loan will be higher under the Consolidation Graduated Repayment Plan than under the Consolidation Standard Repayment Plan. This plan is good for a borrower whose income is low, but will steadily increase;
  • Extended Repayment Plan: To qualify for this plan, borrower`s Direct Loan balance must be greater than $30,000 and borrower will have up to 25 years to repay loan(s).Plan Options Include:
  • Fixed Monthly Payment Option: Borrower will pay a fixed amount of at least $50 each month from up to 25 years. Repayment under this plan will result in lower total interest paid when compared to graduated plans with similar terms
  • Graduated Monthly Payment Option: Borrower will pay a minimum payment amount of at Borrower`s payments start out low, and then increase every two years. Repayment under this plan may provide lower initial monthly payments, although the total interest paid may be greater when compared to plans with similar terms with fixed payments. This plan is good for a borrower whose income is low, but will steadily increase;
  • Extended repayment plans are available to Direct Loan borrowers with no outstanding principal or interest balances as of October 7, 1998 and with more than $30,000 in Direct Loans;
  • Income Contingent Repayment (ICR) Plan: Payment amount is based on borrower`s income (and borrower`s spouse`s income, if married), loan balance and family size, can vary year-to-year for upto 25 years;
  • Income-Based Repayment (IBR) Plan: Payment amount is based on borrower income (and spouse`s income, if married and file joint tax returns), family size, and can vary year-to-year fro up to 25 years. Borrower must be facing a partial financial hardship.

Satisfactory Repayment Arrangements

Borrowers in default on Direct Loan and FFEL Program Loans who wish to consolidate their loans in a plan other than the Income Contingent Repayment (IC) Plan must have made satisfactory arrangements with the loan holder(s). Three consecutive, voluntary, on time monthly payments on a defaulted Direct Loan or FFEL Program Loan constitute satisfactory repayment arrangements. Borrowers must work with their current loan holders to set up reasonable and affordable payments. Borrowers who wish to consolidate defaulted Perkins or health professional loans should contact their loan holders for information on satisfactory repayment arrangements under those programs.

Separation Date

The actual or anticipated date when the borrowers graduate, leave school, or drop to a less than half-time status; the separation date is used to determine the loan`s grace period and the date the first loan payment will be due.

Servicer

An entity designed to track and collect a loan on behalf of a loan holder.

Simple Daily Interest

The method used to calculate interest on student loans.

Status (Loan Status)

The present state of your Subsidized, Unsubsidized, PLUS, or Consolidation Loan(s); an account will be either:

  • In-school
  • Deferment
  • In-military
  • Forbearance
  • Grace
  • Paid-in-full
  • Repayment-current
  • Suspended
  • Repayment-delinquent
  • Default

Subsidized Loan

A loan for which a borrower is not responsible for the interest while in an in-school, grace, or deferment status. Subsidized loans include Direct Subsidized, Direct Unsubsidized Consolidation Loans, Federal Subsidized Stafford Loans, and Federal Subsidized Consolidation Loans.

Total Education Indebtedness

Total Education Indebtedness is the sum of a Direct Consolidation Loan, and other eligible education indebtedness, up to an amount equal to the Direct Consolidation Loan. Total Education Indebtedness is used to calculate the number of payments under Standard and Graduated Repayment Plans.

Variable Interest

The rate of interest charged on a loan that changes annually and fluctuates with a stated index.

Verification Certification

The process by which a consolidation lender requests that a loan holder certify a loan`s payoff balance.

William D. Ford Federal Direct Loan Program (Direct Loan Program)

The Federal program that provides loans to eligible student and parent borrowers under Title IV of the Higher Education Act; the loan programs include Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans. Funds are provided directly by the Federal government to eligible borrowers through participating schools.