July 11, 2006, 9:43 am : Glossary A - G
Filed Under: Interest RatesDiscussion:
Account
A grouping of one or more Direct loans disbursed by the U.S. Department of Education. Borrowers can have one or more accounts. Each account has a unique number assigned to identify it. The format of an account number is your Social Security Number (SSN) plus a one-digit identifier added to the end (e.g., 123-45-6789-1). If you receive a notice that affects all of your possible accounts, the account number on the notice may be abbreviated to the Social Security Number only.
Accrue
The process whereby interest accumulates on your loan. When we speak of “interest accruing on your loan,” we mean that the interest due on your loan is accumulating.
Borrower
Individual who signed and agreed to the terms in the promissory note and is responsible for repaying a loan.
Cancellation
Some student loan programs allow for all or part of the total loan principal and accrued interest to be canceled in certain circumstances. A canceled loan may also be referred to as a “discharged loan.”
Capitalization
Adding unpaid accrued interest to the principal balance. Capitalizing interest increases the principal amount of the loan and the total cost of the loan. This occurs at the end of a deferment, forbearance, or grace period on Unsubsidized Loans, and at the end of a forbearance period on a Subsidized Loan.
Collection Costs
When a defaulted Direct Loan or FFEL is included in a Direct Consolidation Loan, collection costs of up to 18.5 percent of the outstanding principal and interest are added to the outstanding balance. When defaulted Perkins Loans and Health and Human Service (HHS) loans are consolidated, collection costs are also added. However, collection costs on these loans may exceed 18.5 percent of the outstanding principal and interest.
Consolidation
The process of combining one or more eligible educational loans into a single new loan. The Direct Loan Program offers a Direct Consolidation Loan for those borrowers who are interested in consolidating their eligible educational loans.
Default
Failure to repay a loan according to the terms agreed to when borrowers signed their promissory notes. Default occurs when a Direct Loan borrower becomes 270 days delinquent in making payments on their loan(s). The consequences of default can be severe.
Default Aversion
The activities of a guaranty agency that are designed to prevent a default by a borrower who is at least 60 days delinquent and that are directly related to providing collection assistance to the lender.
Deferment
A deferment is a temporary suspension of a borrower’s monthly loan payment. There are many different types of deferments available.
During deferment of subsidized loans, principal payments are postponed and interest does not accrue.
During deferment of unsubsidized loans, principal payments are postponed but interest continues to accrue. Accrued unpaid interest will be added to the principal balance (capitalized) of the loan(s) at the end of the deferment period. This will increase the amounts borrowers owe.
Delinquent
Delinquency status indicates that borrowers’ accounts have become past due on payment. This occurs when borrowers’ loan payments are not received by the due dates. Accounts remain delinquent until borrowers bring their accounts current with payments, deferments, or forbearances. If borrowers’ accounts have become delinquent and the borrowers are unable to make payments, deferments or forbearances should be considered.
Dependent student(dependent undergraduate student)
A student who does not meet any of the criteria for an independent student. An independent student is at least 24 years old, married, a graduate or professional student, a veteran, a member of the armed forces, an orphan, a ward of the court, or someone with legal dependents other than a spouse.
Direct Loan Servicing Center
The U.S. Department of Education’s agent contracted to collect Direct Loans and handle deferments, forbearances, and repayment options.
Direct PLUS Loan (PLUS Loan)
Direct PLUS Loans are unsubsidized loans available to parents of dependent students, and to students enrolled in graduate or professional programs. These loans are available regardless of financial need and the amount of eligibility depends on the total cost of education.
Disbursement
Payment of loan proceeds by the lender. During consolidation, this term refers to sending payoffs to the loan holders of the underlying loans being consolidated.
Disclosure Statement
A statement showing a borrower’s loan term, payment schedules and monthly payment amount for their loans.
Federal Family Education Loan Program(FFEL Program)
A Federal program authorized under Title IV of the Higher Education Act that provides loans to eligible student and parent borrowers. The program consists of Subsidized and Unsubsidized Federal Stafford Loans, Federal PLUS Loans, and Subsidized and Unsubsidized Federal Consolidation Loans. Funds are provided by private lenders such as banks, credit unions, and other private financial institutions. The loans are backed by the Federal government.
Forbearance
A period during which your monthly loan payments are temporarily suspended or reduced. You may qualify for forbearance if you are willing but unable to make loan payments due to certain types of financial hardships.
Grace Period
After borrowers graduate, leave school, or drop below half-time enrollment, loans that were made for that period of study have several months before payments are due. This period is called the “grace period.”