Capitalization: The addition of unpaid interest to the principal balance of a loan. When the interest is not paid as it accrues during periods of in-school status, the grace period, deferment, or forbearance, it may be capitalized. This increases the outstanding principal amount due on the loan and may cause your monthly payment amount to increase.
Consolidation: The process of combining one or more loans into a single new loan.
Credit Bureau: An organization that tracks and reports your credit, including your history of paying bills and calculates your ability to repay future loans.
Default: Failure to repay a loan according to the terms agreed to in the promissory note. For most federal student loans, you will default if you have not made a payment in more than 270 days. You may experience serious legal consequences if you default.
Deferment: A postponement of payment on a loan that is allowed under certain conditions and during which interest does not accrue. Unsubsidized loans that are deferred will continue to accrue interest. Any unpaid interest that accrues during the deferment period may be added to the principal balance (capitalized) of the loan(s).
Delinquent: A loan is delinquent when loan payments are not received by the due date. A loan remains delinquent until the borrower makes up the missed payment(s) through payment, deferment, or forbearance. If the borrower is unable to make payments, he or she should contact his or her loan servicer to discuss options to keep the loan in good standing.
Electronic Debit: A service that allows your lender or servicer to electronically deduct your monthly loan payments from your checking or savings account.
Exit Counseling: A mandatory information session which takes place when you graduate or attend school less than half-time that explains your loan repayment responsibilities and when repayment begins.
Forbearance: A period during which your monthly loan payments are temporarily suspended or reduced. Your lender may grant you a 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 added to the principal balance (capitalized) of your loan(s), increasing the total amount you owe.
Grace Period: A period of time after borrowers graduate, leave school, or drop below half-time enrollment where they are not required to make 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.
Interest: An expense charged for the use of borrowed money. Interest is paid by a borrower to a lender. The expense is calculated as a percentage of the unpaid principal balance of the loan.
Loan Forgiveness: The cancellation of all or some portion of your remaining federal student loan balance. If your loan is forgiven, you are no longer responsible for repaying that remaining portion of the loan.
Loan Holder: The entity that holds the loan promissory note and has the right to collect from the borrower.
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 a lender.
Master Promissory Note: 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 or more academic years (up to 10 years). 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 your 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 provisions of the loan, such as deferments or forbearances.
Private Loan: A non-federal loan made by a lender such as a bank, credit union, state agency, or school.
Principal: The total sum of money borrowed plus any interest that has been capitalized.
Rehabilitation: The process of bringing a loan out of default and removing the default notation from a borrower's credit report. To rehabilitate a Perkins or Harvard Institutional Loan, a borrower must make 9 on-time, consecutive monthly payments of an agreed-upon amount. Rehabilitation terms and conditions vary for other loan types and can be obtained directly from loan holders.
Subsidized Loan: A loan based on financial need for which the federal government pays the interest that accrues while the borrower is in an in-school, grace, or deferment status.
Unsubsidized Loan: A loan for which the borrower is fully responsible for paying the interest regardless of the loan status. Interest on unsubsidized loans accrues from the date of disbursement and continues throughout the life of the loan.