Federal Student Loan Terminology: A Comprehensive Guide
1. Federal Student Loan: A federal student loan is a loan issued by the U.S. Department of Education to help students pay for their higher education expenses. These loans generally offer lower interest rates and more flexible repayment options compared to private loans.
2. Subsidized vs. Unsubsidized Loans: Federal student loans come in two main types: subsidized and unsubsidized. Subsidized loans are need-based and the government pays the interest while you are in school, during the grace period, and during deferment periods. Unsubsidized loans, on the other hand, accrue interest during these times, which you are responsible for paying.
3. Direct Loans: Direct Loans are federal student loans made by the U.S. Department of Education. They include both subsidized and unsubsidized loans, as well as Direct PLUS Loans and Direct Consolidation Loans.
4. Interest Rate: The interest rate on federal student loans is set by Congress and is fixed for the life of the loan. Rates vary depending on the type of loan and when it was disbursed.
5. Principal: The principal is the original amount of money borrowed before interest is applied. For example, if you take out a $10,000 loan, the principal is $10,000.
6. Grace Period: The grace period is the time after you graduate, leave school, or drop below half-time enrollment during which you are not required to make payments on your federal student loans. This period typically lasts six months.
7. Repayment Plan: There are several repayment plans available for federal student loans, including the Standard Repayment Plan, Graduated Repayment Plan, Extended Repayment Plan, and Income-Driven Repayment Plans. Each plan has different terms and conditions.
8. Income-Driven Repayment Plans: These plans adjust your monthly payment based on your income and family size. The main types are Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income-Contingent Repayment (ICR).
9. Loan Forgiveness: Loan forgiveness is a program that cancels all or part of your loan under certain conditions. For example, Public Service Loan Forgiveness (PSLF) is available for borrowers who work in qualifying public service jobs and make 120 qualifying payments under an income-driven repayment plan.
10. Consolidation: Loan consolidation combines multiple federal student loans into a single loan with one monthly payment. This can simplify repayment but may extend the repayment term and affect the total amount of interest paid.
11. Default: Default occurs when a borrower fails to make payments on their loan for an extended period, typically 270 days or more. Defaulting on a federal student loan can lead to serious consequences, including wage garnishment and damage to your credit score.
12. Deferment: Deferment is a temporary suspension of loan payments, during which interest may or may not accrue, depending on the type of loan. Deferment is often granted for reasons such as returning to school, economic hardship, or military service.
13. Forbearance: Forbearance is a temporary postponement or reduction of loan payments, usually granted when a borrower is experiencing financial difficulty. Unlike deferment, interest accrues during forbearance on all types of federal student loans.
14. FAFSA: The Free Application for Federal Student Aid (FAFSA) is a form that students and their families must complete to apply for federal student aid. The FAFSA determines eligibility for federal loans, grants, and work-study programs.
15. EFC (Expected Family Contribution): EFC is a measure of a family’s financial strength and is used to determine a student’s eligibility for need-based financial aid. It is calculated based on the information provided in the FAFSA.
16. NSLDS (National Student Loan Data System): The NSLDS is the U.S. Department of Education’s central database for federal student aid. It provides information about your federal student loans and grants, including loan balances, disbursements, and repayment status.
17. Loan Servicer: A loan servicer is a company that manages your federal student loan on behalf of the Department of Education. They handle billing, repayment options, and customer service related to your loans.
18. Perkins Loan: The Perkins Loan Program was a federal student loan program for students with exceptional financial need. This program was discontinued in 2017, but borrowers who have Perkins Loans still need to manage them under the terms of their original loans.
19. PLUS Loan: The Parent Loan for Undergraduate Students (PLUS) allows parents to borrow money to pay for their child's education. PLUS loans are not need-based and have higher interest rates compared to other federal student loans.
20. Federal Student Aid (FSA): FSA is the office within the U.S. Department of Education that oversees the administration of federal student aid programs, including loans, grants, and work-study.
21. Aggregate Loan Limit: The aggregate loan limit is the maximum amount of federal student loans a student can borrow over the course of their academic career. This limit varies depending on the student’s level of education and dependency status.
22. Cost of Attendance (COA): COA is the total amount it will cost a student to attend a particular school. This includes tuition, fees, room and board, books, supplies, and other related expenses.
23. Loan Disbursement: Loan disbursement is the process by which the funds from a federal student loan are released to the school or directly to the borrower. Disbursements usually occur at the beginning of each term or semester.
24. Entrance Counseling: Entrance counseling is a mandatory session that new federal student loan borrowers must complete before receiving their loans. It provides important information about loan terms, repayment, and borrower rights and responsibilities.
25. Exit Counseling: Exit counseling is required for federal student loan borrowers who are graduating, leaving school, or dropping below half-time enrollment. It provides information on repayment options and what to expect after leaving school.
26. Perkins Loan Cancellation: Perkins Loan cancellation refers to the forgiveness of Perkins Loan debt for borrowers who meet certain criteria, such as working in certain public service jobs or teaching in low-income schools.
27. Direct Consolidation Loan: A Direct Consolidation Loan combines multiple federal student loans into a single loan with a fixed interest rate, based on the weighted average of the interest rates on the loans being consolidated.
28. Loan Rehabilitation: Loan rehabilitation is a process to help borrowers who are in default on their federal student loans. It involves making a series of agreed-upon payments to bring the loan out of default status.
29. Repayment Term: The repayment term is the period over which you agree to repay your federal student loan. Terms can vary depending on the repayment plan and the type of loan.
30. Capitalization: Capitalization is the process of adding unpaid interest to the principal balance of a loan. This typically occurs when a borrower enters repayment after a deferment or forbearance period.
31. Principal Balance: The principal balance is the amount of money remaining on the loan that has not yet been repaid. It does not include interest or fees.
32. Loan Servicing: Loan servicing refers to the management of federal student loans, including payment processing, customer service, and handling requests for deferment, forbearance, or repayment plan changes.
33. Borrower Defense to Repayment: Borrower Defense to Repayment is a program that allows borrowers to seek forgiveness of their federal student loans if they were defrauded by their school or if the school violated certain state laws.
34. Collection Costs: Collection costs are additional fees that may be charged if a borrower’s loan goes into default and the loan is sent to a collection agency. These costs are added to the total amount owed.
35. Loan Refinance: While federal student loans cannot be refinanced through the federal government, borrowers can choose to refinance their federal loans with private lenders. This may offer lower interest rates but can result in the loss of federal loan benefits.
36. Borrower’s Rights and Responsibilities: As a federal student loan borrower, you have rights, such as the right to clear information about your loan and repayment options, as well as responsibilities, including making timely payments and keeping your loan servicer informed of changes in your contact information or enrollment status.
By understanding these key terms and concepts, you can better manage your federal student loans and make informed decisions about your education financing.
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