Student Loan Vocabulary

Master Promissory Note (MPN)

A binding legal document that you must sign when you get a federal student loan. The MPN can be used to make one or more loans for one more academic years (up to 10 years) at one or more schools. It lists the terms and conditions under which you agree to repay the loan and explains your rights and responsibilities as a borrower. It's important to read and save you MPN because you'll need to refer to it later when you begin repaying your loan or at other times when you need information about loan provisions, such as deferments or forbearances.

Work-study

A federal student aid program that provides part-time employment while you are enrolled in school to help pay your education expenses.

Subsidzed loan

A loan based of financial need for which the federal government generally pays the interest that accrues while the borrower is in an in-school, grace, or deferment status. A borrower is eligible to receive subsidized loans for up to 150 percent of his or her program length.

Interest

A loan expense charged for the use of borrowed money. Interest is paid by the borrower to ED. The expense is calculated as a percentage of the unpaid principal amount of the loan.

Unsubsized loan

A loan for which the borrower is full responsible for paying the interest regardless of the loan status. Interest on unsubsidized loan accrues from the date of disbursement and continues throughout the life of the loan. This type of loan is not based on financial need.

Loan Servicer

A company that collects payments, responds to customer service inquiries, and performs other administrative tasks associated with maintaining a federal student loan on behalf of ED. If you're unsure of who your federal student loan servicer is, you can look it up in "My Federal Student Aid".

Adverse Credit History

A credit history is a summary of your financial strength, including your history of paying bills and your ability to repay future loans. Your credit history may be considered adverse if you have experienced bankruptcy discharge or foreclosure within the past five years, or if you have any accounts that are 90 days or more delinquent.

Forbearance

A period during which your monthly loan payments are temporarily suspended or reduced. ED may grant you 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. Unpaid interest that accrues during the forbearance will be capitalized , increasing the total amount you owe.

Grant

Financial aid, often based on financial need, that does not need to be repaid (unless, for example, you withdraw from school and owe a refund).

Principal

Loan principal can refer either to the original amount borrowed, or to the remaining amount of principal to be repaid. The current principal balance may include interest that has been capitalized.

Scholarship

Money awarded to students based on academic or other achievements to help pay for education expenses. Scholarships generally do not have to be repaid.

Entrance Counseling

A mandatory information session, which takes place before you receive your first federal student loan; entrance counseling explains your responsibilities and rights as a student borrower.

Deferment

A postponement of payment on a loan that is allowed under certain conditions and during which interest does not accrue on Direct Subsidized Loans, Subsidized Federal Stafford Loans, and Federal Perkins Loans. All other federal student loans that are deferred will continue to accrue interest. Any unpaid interest that accrued during the deferment period may be capitalized (added to the principal balance of the loans).

Net Price

An estimate of the actual cost that a student and his family need to pay in a given year to cover education expenses for the student to attend a particular school. Net price is determined by taking the institution's cost of attendance and subtracting any grants and scholarships for which the student may be eligible.

Grace Period

Period of time after a borrower graduates, leaves school or drops below half-time enrollment where they are not required to make certain federal loan payments on certain federal student loans. Some federal student loans will accrue interest during the grace period, and if the interest is unpaid, it will be added to the principal balance of the loan when the repayment period begins.

Capitalization

The addition of unpaid interest to the principal balance of a loan. When the interest on your federal student loan is not paid as it accrues (accumulates), ED will capitalize the interest under certain circumstances. This increases the outstanding principal amount due on the loan and may cause your monthly payment amount to increase. Interest is then charged on that higher principal balance, increasing the overall cost of the loan.