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Student and Parent Loans
Student Loan Glossary
 

ACH: (Automated Clearing House) provides the interbank clearing of electronic payments for participating depository financial institutions. It requires you to provide your bank information (account type, routing number and account number).

Capitalized Interest: the addition of unpaid accrued interest onto the principal balance of a loan that increases the total outstanding debt.

Cancellation of Federal Direct Loans
This provision of the College Cost Reduction Act allows cancellation of Federal Direct Loans for borrowers in certain public service employment. To be eligible for forgiveness, the borrower must work in an eligible public service position for ten years and will need to consolidate loans into a Direct Lender program.

Default Fee is a small percentage of the loan that is paid to the guarantee agency to insure the loan against default. The insurance fee is usually 1% of the loan amount and is usually deducted at the time the loan is disbursed.

Deferment Periods: an approved temporary suspension of loan payments based on certain permissible events or criteria, such as enrollment in school, unemployment, and economic hardship. Interest continues to accrue only on unsubsidized loans during deferment periods.

Disbursement: the release of loan funds to the school for delivery to the borrower.  Loan funds are first credited to the student's account for payment of tuition, fees, room and board and other school charges. Disbursement is usually made in at least two equal installments.

Disclosure Statement: a document outlining the specific terms and conditions of a loan, including  interest rate , fees,  amount borrowed, insurance, and  responsibilities of the borrower.

Electronic Funds Transfer (EFT): used by some schools and lenders to wire loan funds directly to a student’s billing account instead of requiring an intermediate check for the student to endorse. Because the funds are transferred electronically instead of using paper, they are more readily available to the student.

Forbearance Periods: an approved temporary suspension of loan payments based on certain permissible events or criteria, such as economic hardship. Interest continues to accrue on subsidized and unsubsidized loans during forbearance periods.

Grace Period: the period after a student either graduates or leaves school and before loan repayment begins.

Guarantor: the agency or institution that insures up-to-permissible limits against loss to lenders in the event of default.

Income-Based Repayment
This provision of the College Cost Reduction Act enables students who are pursuing jobs with lower salaries, such as public service careers, to repay an adjusted amount, based on annual income and family size. The repayment cap is limited to 15% of the difference between the borrower’s income and 150% of the federal poverty line, with forgiveness after no more than 25 years. It is available only for these federal student loans: Stafford, Grad PLUS, and consolidated loans (undergraduate PLUS Loans are not included).

Loan Consolidation: combining multiple education loans into a new loan with a new payment schedule and interest rate.

Origination Fee: is paid to the lender to offset the costs of administering a loan. An origination fee is a percentage of the loan amount, and is usually deducted from the loan at the time the loan is disbursed

Principal: the amount of money borrowed or disbursed (after any fees are deducted).

Promissory Note: the binding legal document that must be signed by the student borrower before loan funds are disbursed by the lender. The promissory note states the terms and conditions of the loan, including repayment schedule, interest rate, deferment policy and cancellations. The student should keep this document until the loan has been repaid.

Public Service Employment
Public service jobs include, among other positions, government, military service, public safety and law enforcement (police and fire), public health, public education, public early childhood education, public child care, social work in a public child or family service agency, public services for individuals with disabilities or the elderly, public interest legal services (including prosecutors, public defenders and legal advocacy in low-income communities), public librarians, school librarians and other school-based services, and employees of tax exempt 501(c)(3) organizations. Full-time faculty at tribal colleges and universities, as well as faculty teaching in high-need areas, also qualify.

Public Service Forgiveness

Servicer: an organization that bills, collects payments, answers borrower inquiries and performs other administrative tasks associated with maintaining a loan portfolio.

Subsidized Loans: loans for which the Federal Government pays the interest during any approved grace and deferment periods.

Unsubsidized Loans: loans for which the borrower is responsible for the interest that accrues on the loan from the date of disbursement until the loan is paid in full, regardless of enrollment status.

 

 

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