Financial Aid Glossary

Department of Education – The federal agency that establishes financial aid programs and processes financial aid applications.

Academic Year – A one-year period between July 1 and June 30.

Grants – A type of financial aid award that does not have to be repaid. Grants are often made based on an applicant's financial need or EFC

Scholarships – A financial aid award that does not have to be repaid. Scholarships are generally made based on an applicant meeting certain eligibility criteria. You can search for college scholarships for free.

Loans – Financial aid awards that the student (or other party like a parent, for example) borrows from a lender, the school or other third party. Loans must be repaid by the borrower according to the terms of a promissory note, usually with interest.

Work Study – See Federal Work Study

The Free Application for Federal Student Aid (FAFSA) – The official application form for all federal financial aid programs. Complete your FAFSA online.

Federal Work Study (FWS) – Federally funded program that allows colleges and universities to create campus based employment programs for financial aid recipients.

Federal Pell Grant – A need-based financial aid program funded by the federal government. Students with an EFC less than $x are eligible for the Pell Grant. The amount of the award is based on the student's enrollment level (full time, three-quarter time, etc.) and the cost of attendance.

Federal Supplemental Education Opportunity Grant (SEOG) – A need-based financial aid program funded by the federal government. Colleges receive an annual allocation of SEOG and, within certain guidelines, develop an awarding policy for this fund.

Federal Family Education Loan Program (FFELP) – The collective name for the Federal Stafford and PLUS loan programs. FFELP loans are funded by private lenders.

Federal Direct Student Loan Program (FDSLP) – The program name for loans that are both guaranteed and funded by the federal government. If your school is a "Direct Lending School", your Stafford Loan is administered by the Federal Direct Student Loan Program (FDSLP). Funds for Federal Direct Loans are provided by the US government directly to students and their parents through their schools. Applications can be obtained from your school. Banks and guarantee agencies are not involved in the process.

Expected Family Contribution (EFC) – The amount that a student and family can be expected to contribute towards educational expenses over a year's time. The EFC is calculated when the student submits a financial aid application.

Federal Methodology Expected Family Contribution (FM EFC) – The specific EFC calculated by the federal government based on information submitted on the FAFSA. The FM EFC calculation is set each year by the U.S. Department of Education and determines eligibility for federal aid programs.

Institutional Methodology Expected Family Contribution (IM EFC) – a variation of the FM EFC calculated by a college or university. This EFC calculation can incorporate different items than the FM EFC calculation and is used by colleges to allocate institutionally sponsored aid programs.

Financial Need – The difference between a student's Cost of Attendance and Expected Family Contribution. It is the amount of financial aid the student "needs" to afford attendance at a particular college.

Cost of Attendance – the total of all costs a financial aid office estimates students will incur during attendance at the college or university

Direct Costs – Costs that the college or university directly bills to the student. Tuition and fees are direct costs.

Indirect Costs – Costs associated with a student's enrollment that are not billed by or incurred through the College. Transportation and miscellaneous costs are indirect costs.

Award Letter – A notice from a financial aid office to a financial aid applicant that specifies the financial aid programs and dollar amount of a each financial aid award.

Cost Less Aid Amount – The difference between the total cost of education and the financial aid package offered to you by the school, including scholarships, grants, work-study and Stafford Loans. This amount is what you are expected to pay out of pocket or through supplemental loan programs (see PLUS and Alternative Loans)

Federal Stafford Loan – a federally guaranteed loan program that allows students to borrow funds from lenders. Stafford Loans allow the student to defer payments while he/she is in school. The interest rate for new Stafford Loans is variable but will not exceed 8.25%.

Subsidized Stafford Loan – This is a need-based student loan. Interest that accrues on subsidized Stafford Loans while the student is in school (at least half time) is paid by the federal government on the student's behalf.

Unsubsidized Stafford Loan – The unsubsidized Stafford Loan is a non-need based loan program, so students with no financial need can even qualify for this aid program. Interest that accrues on Unsubsidized loans must be paid by the borrower, even while he/she is in school. The borrower may make periodic payments (monthly or quarterly, depending on the lender's policy) or allow the interest to accrue throughout enrollment and have the interest "capitalized" (added to the loan's principle balance). While capitalization eliminates having to make payments while in school but increases the total cost of a loan.

Federal PLUS Loan – A federally guaranteed loan program that allows parents to borrow funds to help pay educational expenses. The program does require the borrower to pass a simple credit check. The loan's interest rate is variable, but new loans have a maximum interest rate of 9%.

Promissory Note – Legal document that specifies the terms and conditions of a loan.

Deferment – A temporary period during which a borrower is not required to make payments. Deferments are more common in Federal loan programs rather than alternative loans.
For Subsidized Stafford Loan borrowers (and Perkins Loan borrowers), many deferments are subsidized, meaning the interest that accrues on the loan during the deferment is paid by the federal government.

Some deferments are unsubsidized, meaning the interest that accrues must be paid by the borrower.

(Resources on the web from the department)

Guarantee Agency (Guarantor) – One of approximately forty companies throughout the country that financially guarantee that loans made by lenders under the FFELP will be repaid. Guarantee agencies typically retain a percentage of each student loan to maintain a fund to cover unpaid loans. A list of existing guarantee agencies is available at the following link (DOE Link)

Guarantee Fee – A type of fee a borrower pays to a lender. Guarantee fees are collected as a financial reserve to protect the loan program in cases of student default. Federal Stafford, PLUS and Federal Direct Student loans guarantee fee is a maximum of 1% of the loan's principal balance.

Origination Fee – A fee the borrower pays to the lender for originating a student loan. Origination fees are most often associated with Federal Stafford, PLUS and Federal Direct Student loans. The maximum origination fee for these federal loans is 3% of the loan's principal balance.

Entrance Counseling – An educational session that first time Stafford borrowers must fulfill before the loan's proceeds can be disbursed. The Entrance Counseling sessions provides these first time borrowers basic information about student loans and the terms and conditions of the Stafford Loan program.

Exit Counseling – An educational session that Stafford Loan borrowers must fulfill around the time of graduate or separation from a college. The Exit Counseling session provides the borrower detailed information about the loans he/she borrows, the company that will collect the payment and the repayment alternatives that are available.

Debt to Income Ratio – The percentage of a loan applicant's (monthly) income that is used to meet debt obligations. Many alternative loan programs use this calculation to determine an applicant's eligibility for a loan program.

Standard Repayment – A repayment alternative in which a borrower pays a set amount monthly over the entire repayment term. Also called "Simple Repayment".

Income Sensitive Repayment – This repayment alternative is available to some federal loan borrowers (check with your lender or servicer to learn if your loans qualify for this alternative). Income sensitive repayments bases the monthly payment on the borrower's income in relation to total federal loan indebtedness.

Under this option, monthly payments can drop to as low as the amount of interest that accrues on the loan's principal balance. Borrowers must apply for this option annually and must provide documentation of income - usually in the form of a federal tax return.

Extended Repayment – A new option to recent federal loan borrowers. This option allows borrowers with high balances (greater than $25,000 in federal loans) to extend the repayment term from its standard 10 year term to 25 or 30 years.

While extending the repayment term reduces the loan's monthly payment, it also increases the total amount of interest paid on the loan.

Graduated Repayment – This option is available for federal loans, and even some alternative loan providers offer graduated repayment.

Under graduated repayment, payments are low (usually just enough to cover the loan's accruing interest) when the borrower first enters repayment. Periodically, the payments increase to pay off the loan in the standard 10 year repayment term.

The idea of graduated repayment is to have low payments while a borrower is first entering the working world. Then, as income increases, the student loan payments also increase.

Loan Servicer – Once a loan has been approved and disbursed, by the lender or the guarantee agency, it is usually transferred to a servicing company. This is a company that is responsible for managing your account while you are in school and during repayment. You will repay the servicing company until the loan is paid in full. Any questions or repayment issue should be addressed to the servicing company. However, if you are having problems with the servicer, you should contact your lender for additional assistance.