Common Student Loan Terms
The lender(s) on the loan(s) adds any unpaid interest to the principle of the loan(s). Borrowers should understand that capitalization of interest increases the principal balance of the loan(s).
A method of postponing payments while a borrower is enrolled in school half-time or more, or while experiencing an economic hardship due to unemployment, job rehabilitation, fellowship, or during a temporary disability period. Deferment can be used for one year at a time, for up to three years. During this period, the government pays the interest on the subsidized portion of the loan.
The final document mailed to the borrower from the servicer notifying the borrower that the consolidation process has been completed.
Federal Direct Loan Program
Education loans provided through the U.S. Department of Education. Also known as the William D. Ford Federal Direct Loan Program. This program includes Federal Direct Stafford, Federal Direct PLUS, and Direct Consolidation loans. These are all eligible loans for Federal Consolidation.
Federal Family Education Loan Program
A loan program authorized by the federal government in the Higher Education Act to provide financial aid for college students. This program includes Federal Stafford, PLUS, and Consolidation loans. These loans are funded by private lenders, guaranteed by guaranty agencies and ultimately insured by the federal government.
During forbearance the lender allows the borrower to temporarily postpone monthly payment. Interest charges continue to accrue, even on subsidized loans. Forbearance is usually granted in cases of financial hardship or other unusual circumstances when the borrower does not qualify for deferment.
Upon separation from school, borrowers are granted a “grace period” during which time they are not required to make payments on their federal student loan(s). Interest will continue to accrue on all unsubsidized loans. The grace period is 6 months on most federal student loans.
This is the fee deducted from student loans to help the cost of defaults; it is also known as the insurance premium. The guarantee fee for Federal Stafford and PLUS loans is 1% of the loan balance. Federal and Private Consolidation loans do not have a guarantee fee.
The state or private organization that administers the insurance program for the federal program.
A bank, credit union, savings & loan association, or other financial institution that provides funds to the student or parent for an educational loan.
Loan Verification Certificate (LVC)
The LVC is an official document sent from the consolidating lender to the borrower’s current lender(s), to determine eligibility of the loans being included for consolidation. The LVC confirms the payoff balance, interest rate, and loan status.
This is the fee that is charged to pay the administrative costs associated with student loans. The origination fee for Federal Stafford and PLUS loans is 3% of the loan balance. Federal Consolidation loans do not have an origination fee. The origination fee on private student loans (including private consolidation loans) varies and is dependent on the borrowers (or cosigner’s) credit score.
The servicer works on behalf of the lender. They are responsible for handling all payments and requests for deferment, forbearance, and loan forgiveness.
A subsidized loan is awarded on the basis of need. The federal government pays the interest on the loan (“subsidizes” the loan) until repayment begins or during authorized periods of deferment.
An unsubsidized loan is available to students who do not qualify for a subsidized loan or need additional aid. Students will be charged interest from the time the loan is disbursed until it is paid in full.