Glossary

Glossary

Accrued Interest
Interest which accumulated upon the unpaid balance of your loan's principal.

Amortization
The gradual reduction of loan debt by your monthly payments of principal and interest.

Borrower
Anyone who obtains funds from a lender through an extension of credit fir a period of time. The borrower is required to sign a "promissory note" as evidence of indebtedness.

Cancellation
Some student loans may be cancelled in full or in part for serving in a particular geographic location or in a particular field. Also, unlike regular consumer loans, he balance of a student loan may be cancelled upon the death or disability of the borrower. Each "service-cancellable" loan has its own stipulations.

Capitalizing Interest
A process which adds unpaid interest to the principal of a loan, thereby increasing both the balance due and your monthly payments. Usually a lender capitalizes the interest of a loan when the borrower is unable to pay the interest as it accrues. An example of a loan that capitalizes interest is the unsubsidized Stafford loans.

Consolidation Loan
A way to refinance many of your existing loans by consolidating them into one new loan. Usually a consolidation loan has a lower monthly payment and a longer term that your combined original loans, but increases your interest paid. Proceed with caution; not advisable for all students! Varies with needs of each student.

Credit Bureau
Agency that compiles and distributes credit and personal information to creditors. This information may include your payment habits, number of credit accounts, balance on those accounts, place of employment, and length of employment. Note: You have the right to examine your credit file and explain or correct the information in it. Usually a fee is charged when you exercise that right. However, there is no charge if you have been denied credit because of information in the file.

Default
Failure to meet your financial obligations when a promissory note becomes due and payable. Also, failure to make loan payments at stipulated time. Defaults are recorded on your permanent credit record. The lender or government can take legal action against the borrower.

Deferment
A deferment allows you to postpone payment of your student loan if you meet the requirements. Deferments can be granted for a variety of reasons. Internship/Residency will be your major reason for deferment.

Disbursement
The date your lender issues your educational loan check. This is not always the date the school receives the loan check.

Disclosure Statement
Statement of the actual cost of a loan, which includes the interest rate and any additional finance charges. Lenders must present a disclosure statement to borrowers when the loan is made.

Exit Interview
A required individual or group discussion you will have with your school's financial aid representative, held shortly before you leave school. One purpose of the interview is to give you information about repaying your student loans.

Forbearance
Forbearance is a special arrangement made for financial hardship. If you meet the requirements, forbearance could change the terms of your student loan so that you may postpone principal payments, extend the amount of time you have to repay your loan or allow you to make smaller payments for a specified period of time. You must contact the holder of your loan.

Garnishing
The deduction of a portion of a borrower's paycheck - with or without the borrower's consent - which a lender may take in order to force repayment of a loan that is in default.

Guarantee Agency
A state or non-profit agency that administers a student loan insurance program. KHEAA is the guarantee agency for Kentucky lenders.

Grace Period
A period of time during which a borrower incurs no loss or penalty for postponing payment of a loan. Some students loans require payment immediately after the borrower's graduation. Others have a grace period, so repayment does not begin until several months after graduation. Grace periods are specifically in promissory notes.

Holder
The institution which has legal possession of your student loan.

Insurance Fee
A fee deducted from the principal which is sent to a guarantee agency or the government to offset processing costs, acts as default insurance and death and disability insurance.

Interest
The price paid (or fee charged) for the use of the borrowed money. The interest is computed as a percentage of the principal.

Master Promissory Note (MPN)
A promissory note under which the borrower may receive loans for either a single period of enrollment or multiple periods of enrollment. If used for attendance at a school eligible to use the multi-year feature, most borrowers sign the MPN once to receive maximum eligibility under the subsidized and unsubsidized Stafford loan program.

Notification (as it relates to the MPN)
A process by which the school lender, or guarantor notifies the borrower of the proposed loan types and amounts. The borrower is required to take action only if he or she wants to reject or adjust the type or amount of the loan.

Need Analysis
A process to determine the "need" for financial aid by considering how much you and your family can contribute to the cost of the education. It is based on an analysis of detailed financial information about your income and assets and those of your spouse and family. A "need analysis" is required for most Federal grants, scholarships, the Stafford Loan (GSL), HEAL, PCL (HPSL), LDS and SLS programs.

Origination Fee
The fee charged by the government to process a loan. It is deducted from the principal.

Overaward
A term which means that the total amount of Financial Aid a student is receiving is more than the amount he/she is eligible to receive. The Financial Aid Office will contact the student directly if their award needs to be adjusted, or if they need to repay the amount that causes the overaward.

Principal
The face value of a loan. In other words, the amount you borrow. It's also the amount on which interest is charged.

Promissory Note
It is your promise to repay, and is a legally binding contract between a borrower and a lender which includes all the terms and conditions of the loan. You should keep your copies in your permanent files.

Repayment Schedule
A list of monthly or quarterly loan payments detailing interest and principal over the life of the loan.

Servicer
The entity designated to track and manage a loan on behalf of the lender or holder of the loan.

Term
The amount of time you have to repay your loan.