18 Common Student Loan Terms, Explained

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Updated on Thursday, November 12, 2015

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Whatever stage of the student loan process you’re in — whether you’re a seasoned pro with years of payments under your belt, or you’re just starting off with the research to find the right one for you — there are a ton of terms that you’ll need to be familiar with during the long process of getting and paying off those loans.

To help, we’ve come up with a glossary of 18 commonly used terms that you should be familiar with. Learn what these words mean with regards to your student loan, and it’ll help you stay educated along the way.

Acceleration: A borrower may be required to pay an acceleration — or demand for immediate repayment — on their loan under certain circumstances, like if they receive loan money but do not enroll for at least part-time student status, or if the loan money is used to pay for expenses other than those determined as educational expenses.

Accrue: The accumulation of interest on a loan.

Annual Percentage Rate (APR): The rate that you will be charged annually for borrowing your money, including fees or additional costs.

Capitalized Interest: Unpaid interest on your behalf that has been added to the principal balance of your student loan is known as capitalized interest. For example, the interest that accrues during your grace period will be capitalized when the period ends and added to the principal balance of your loan. This generally increases the overall amount you owe.

Consolidation: The act of combining two more loans into a single loan. (Find out more about when you should consider consolidation of your loans here.)

Co-signer (or Endorser): In certain situations, someone with excellent credit history may be asked to sign a form agreeing to repay your student loans should you not be able to. This person is referred to as a co-signer or an endorser. (You can find out more about what happens when a borrower defaults on a co-signed loan here.)

Deferment: A federal student loan benefit that allows students to temporarily stop making payments under certain circumstances. The government may also subsidized your interest while in deferment if the loans are Federal Perkins, a Direct Subsidized Loan or a Subsidized Federal Stafford Loan.

Financial Aid Package: Federal and non-federal aid a student may be offered by their school to help pay for educational costs.

Forbearance: A federal student loan can also be postponed using forbearance, but interest will be most likely be accruing during this time. You can learn more about the difference between deferment and forbearance here.

Grace Period: Certain loans afford students a period of time — generally beginning once the school declares you’ve graduated, you leave school or drop below half-time enrollment status and usually ending six to nine months later — during which payment is not expected on loans. This is referred to as a grace period. (Find out more about the ins and outs of a student loan grace period here.)

Income-Driven Repayment Plan: If your debt is high compared to your overall income level, you may qualify for an income-driven repayment plan. Federal student loan borrowers are eligible for this type of repayment plan based on certain factors like income, family size, state of residence and type of loan. 

Interest: Calculated as a percentage of your unpaid principal balance, interest is the additional cost of borrowing money.

Loan Forgiveness: The remaining balance of a loan that gets discharged (forgiven) after a borrower fulfills certain obligations. An example would be the Public Service Loan Forgiveness (PSLF). A borrower works in public service 10 years and makes 120 payments, and then his or her remaining balance would be forgiven.

Principal Balance: Your current loan amount, plus your capitalized interest on that loan. (See also capitalized interest.)

Refinance: To refinance your student loans means to use a new loan (hopefully with a lower interest rate) to pay off your existing debts. Refinancing could save you thousands of dollars over the long run, but remember that refinancing a federal loan to a private one may mean losing certain protections, like special repayment plans. Find out more about refinancing options here.

Servicer: A loan servicer will assist you with tasks related to your student loan such as billing, repayment plans and loan consolidation. 

Subsidized Loan: A type of Federal loan where the borrower is not responsible for paying interest accruing on the loan while in an in-school, grace or deferment period. The government pays interest for subsidized loans during these periods.

Unsubsidized Loan: A type of Federal loan where interest accrues on the loan while you’re in school or deferment.

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