Student loans can be complicated, with a range of terms and jargon that may feel overwhelming. This glossary provides clear, friendly definitions of the most common student loan terms to help you better understand your loans and make informed decisions about your education financing.
A
Amortization
The process of spreading out loan payments over time. Each payment typically includes a portion for interest and a portion that reduces the principal balance.
Annual Percentage Rate (APR)
A measurement of the total cost of a loan, including the interest rate and any fees, expressed as an annual percentage.
Auto-Debit
A payment method where your loan servicer automatically deducts monthly payments from your bank account. Many lenders offer interest rate discounts for using auto-debit.
B
Borrower
The person responsible for repaying a loan. In the case of student loans, the borrower is typically the student or a parent.
Borrower Defense to Repayment
A federal program that allows borrowers to apply for loan forgiveness if they were defrauded or misled by their school.
C
Capitalization
The addition of unpaid interest to the principal balance of a loan. This increases the total amount you owe and can result in higher monthly payments.
Cosigner
A person who agrees to take joint responsibility for a loan if the primary borrower is unable to make payments. Adding a cosigner can help borrowers qualify for loans or better terms.
D
Deferment
A temporary pause in loan payments for specific qualifying circumstances, such as returning to school or experiencing economic hardship. Interest may or may not accrue during this period, depending on the loan type.
Delinquency
The status of a loan when a payment is missed. Loan servicers typically report delinquency to credit bureaus after a certain period, such as 30 or 90 days.
E
Economic Hardship Deferment
A type of deferment available to borrowers experiencing significant financial difficulties. It often requires proof of eligibility, such as participation in certain government assistance programs.
Entrance Counseling
A mandatory session for first-time federal student loan borrowers that explains loan terms, responsibilities, and repayment options.
F
FAFSA
The Free Application for Federal Student Aid, used to determine eligibility for federal grants, work-study programs, and student loans.
Forbearance
A temporary reduction or suspension of loan payments due to financial hardship or other qualifying circumstances. Interest typically accrues during forbearance.
G
Grace Period
A period after graduation, leaving school, or dropping below half-time enrollment during which borrowers are not required to make payments. Federal Direct Subsidized and Unsubsidized Loans typically have a six-month grace period.
Grant
A type of financial aid that does not need to be repaid, usually based on financial need or academic merit.
I
Income-Driven Repayment (IDR)
A group of federal repayment plans that set monthly loan payments based on the borrower’s income and family size.
Interest
The cost of borrowing money, calculated as a percentage of the loan balance. Interest accrues over time and is included in your monthly payments.
L
Loan Forgiveness
The cancellation of all or part of a student loan, often tied to specific employment or public service requirements.
Loan Servicer
The company that manages your student loans, including billing, payment processing, and customer support.
P
Principal
The original amount borrowed, not including interest or fees. Payments are typically applied first to interest and then to the principal balance.
Public Service Loan Forgiveness (PSLF)
A federal program that forgives remaining loan balances for borrowers who work in qualifying public service jobs after making 120 qualifying payments under an eligible repayment plan.
R
Refinancing
The process of replacing one or more existing loans with a new loan from a private lender, often to secure lower interest rates or better terms.
Repayment Term
The length of time a borrower has to repay their loan, typically ranging from 10 to 25 years for student loans.
S
Subsidized Loan
A federal student loan where the government pays the interest while the borrower is in school, during the grace period, and during deferment.
Scholarship
A form of financial aid that does not need to be repaid, typically awarded based on merit, talent, or specific criteria.
U
Unsubsidized Loan
A federal student loan where the borrower is responsible for all interest that accrues, even while in school or during deferment.
W
Work-Study
A federal program that provides part-time jobs for students with financial need, allowing them to earn money to help pay for education expenses.