Glossary of Financial Aid Terms

Accrued interest:: Interest calculated on the unpaid principal payable by the borrower or federal government.
Amortization:: The gradual reduction of a loan debt by periodic installment (i.e. monthly) payments of principal and interest.
Cancellation:: Discharge of a portion or the total loan.
Compounded interest:: Unpaid interest added to the principal of a loan, increasing both the loan principal and monthly payments.
Default:: Failure to meet the terms and conditions of your loan's promissory note. A default becomes part of your permanent credit record.
Deferment:: An approved postponement of payment for a specified period to which the borrower is entitled.
Delinquent:: Failure to make an installment payment when due, or to meet other terms of the Promissory Note.
Disbursement:: Loan proceeds issued by the lender.
EFC (expected family contribution):: Derived from a formula used to evaluate your family's resources. The formula takes several variables into account including which version of the 1040 you file, your age, marital status, number of dependents, income, and assets. This information is collected on the FAFSA and reported on the SAR (Student Aid Report).
FAFSA (Free Application for Federal Student Aid):: The form which collects information to determine eligibility for federal student aid.
Fellowship:: Gift aid which does not have to be repaid.
Forbearance:: Agreement between the lender and the borrower to permit the temporary cessation of principal payments or to accept lower payments than those required in the terms of repayment.
Full time:: Minimum of five credits in the summer; seven in the fall or spring.
Grace period:: A period of time during which no payment is required.
Grant:: Gift aid which does not have to be repaid.
Guarantee agency:: A state or private non-profit entity that administers a student loan insurance program, i.e. NHHEAF or VSAC.
Half time:: Minimum of three credits in the summer; four in the fall or spring.
Insurance fee:: A fee deducted from the principal which is sent to a guarantee agency or the government to offset processing costs.
Principal:: The gross amount of the loan you borrow, and the amount upon which interest will be charged.
Promissory note:: A legally binding contract setting both the terms and conditions under which you promise to repay your loan.
Repayment schedule:: The schedule which sets your monthly payment amount (principal and interest) and the length of time allowed to repay your loan.
Secondary market:: A state, non-profit, or private agency authorized to purchase Stafford and Plus loans from lenders.
Servicer:: An entity contracted to administer and collect your loan for the lender.
Student Aid Report (SAR):: The form which reports back to you the data you provided on the FAFSA and which calculates your EFC.
Work-Study:: A Federal Title IV Program which allows students to earn funds based on eligibility.

Last Updated: 3/3/10