Consolidating 101

Accrued Interest and Interest Capitalization:

While unsubsidized Stafford, PLUS and Grad PLUS loans are in deferment or forbearance, the interest on these loans accrues based upon the unpaid balance of the loan principal. Periodically, the lender capitalizes the accrued interest (adds it to the principal). You are then incurring interest on the accrued interest as well as interest on the loan principal.

Automated Clearing House (ACH) Network:

The ACH Network is a highly reliable and efficient nationwide electronic funds transfer system. Payment by ACH means automatic payment by electronic funds transfer.

Consolidation Loan:

A loan that combines your existing loans into one new loan by paying off your existing balances. A consolidation loan usually has a lower monthly payment and longer repayment term than your combined original loans.

Default:

Failure to repay your loan(s). In FFELP, your loan is considered in default at 270 days past due.

Deferment:

A temporary postponement of student loan principal and/or interest payments that may be granted if the borrower satisfies certain criteria. The government pays interest on your subsidized Stafford loan while it is in deferment, but not on unsubsidized Stafford, Grad PLUS or PLUS Loans.

Delinquent:

The status of a loan when at least one payment is late or missed.

Disclosure Statement:

A document setting forth the terms of your loan, including principal loan amount, interest rate and any additional finance charges or loan fees.

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Expected Family Contribution (EFC):

The sum of money a family is expected to pay for a college education based on financial assessment by the federal government.

Federal Default Fee:

The fee charged to insure or guarantee a student loan.

Federal Family Education Loan Program (FFELP):

A federal loan program, which includes Federal Stafford, PLUS, Grad PLUS and Consolidation loans, funded by private lenders, guaranteed by state and private guarantors, and reinsured by the federal government.

Federal Statutory Rate:

The applicable interest rate for any of the Federal Family Education Loan Programs (including Stafford, PLUS, Grad PLUS and Consolidation loans) as determined pursuant to the Federal Higher Education Act of 1965, as amended.

Financial Aid Officer (FAO):

A member of a school's financial aid office who helps administer financial aid programs.

Forbearance:

Permission to postpone, reduce, or extend payments, usually for three to six months, because of serious economic hardship or other permissible reason. Interest continues to accrue.

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Grace Period:

The time after you stop attending school at least half-time until you must begin making payments on your loans. For Stafford loans, the grace period lasts six months after you graduate, leave school, or drop below half-time status. Once the grace period expires, you must start making loan payments unless a deferment or forbearance has been granted.

Grad PLUS Loan:

A fixed interest rate loan for graduate and professional students where the student is the borrower.

Half-Time:

Student must be enrolled at least half-time or more to obtain a FELP PLUS, GradPLUS, or Stafford Loan. If a borrower is enrolled half-time or more, they are not eligible to consolidate.

Interest:

The amount that a lender charges a borrower for the use of money borrowed.

Interest Rate:

The nominal percentage of the outstanding principal loan amount that is charged for borrowed money.

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Payment Terms:

Provisions, regarding repayment of the loan, such as when payments are due and how they may be made.

PLUS Loan:

A FFELP loan available to parents of financially dependent undergraduate students.

Principal:

The full amount you have borrowed for your loan. When you are repaying the loan, the outstanding principal is the portion of the original amount you still owe, plus capitalized interest, if any.

Promissory Note:

A legally binding contract between a borrower and lender that states the terms and conditions under which the borrower promises to repay the loan.

Repayment Schedule:

A document listing the total amount you owe, the amount of your monthly payment, and the date your first payment is due.

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Secondary Market Lender:

A company that buys student loans from lenders. It typically holds and collects loans until they are fully paid. The company may employ a third-party servicer to perform loan servicing.

Separation Date:

The official date you drop below half-time status or withdraw from school. If you are entitled to a grace period, it begins on the day after separation.

Servicers:

Companies that contract with lenders and secondary markets to provide the customer service activities of loan servicing and loan collection.

Stafford (Subsidized) Student Loan:

A need-based loan where the government is responsible for interest while in school, grace, or deferment periods.

Stafford (Unsubsidized) Student Loan:

A loan not based on need, the student is responsible for interest even while in school, grace, or deferment periods. However, interest may be deferred, but will accrue and capitalize during such periods.

Weighted Average:

An average that takes into account the proportional relevance of each component, rather than treating each component equally.

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