Glossary of Loan Terms

AccelerationRepayment of obligation that is sooner than originally contracted for.
 
Accrued InterestInterest that is earned by the lender and payable by the borrower. Each day interest is calculated on the unpaid principal balance and becomes "accrued interest."
 
AmortizationThe gradual repayment of a debt by periodic (usually monthly) installments of principal and interest.
 
Annual Percentage Rate
(APR)
The total cost of borrowing money expressed as an annual rate.
 
AssignmentThe transfer of the note to another eligible lender. The borrower's responsibility and obligations do not change.
 
CapitalizationThe addition of unpaid accrued interest applied to the principal balance of a loan which increases the total debt outstanding.
 
Capitalized InterestInterest that has been earned on the loan since disbursement, but has not been paid. Accrued unpaid interest which is added to principal.
 
ConsolidationCombining two or more educational loans into a new loan with a new payment schedule and interest rate.
 
Daily Interest CreditThe method of calculating the rebate of precomputed interest. If prepayment is made, the interest charge (finance charge) will be reduced to the amount earned to the day of prepayment, also known as "actuarial method."
 
DefaultThe failure to repay a loan in accordance with the terms of the promissory note. Default occurs after 180 days of non-payment on an account.
 
Deferment PeriodUnder certain conditions, once the repayment period has begun, principal payments (and interest payments under some loan programs) are postponed during specified periods. The borrower must provide documentation to establish eligibility for a deferment when the deferment begins.
 
DelinquentThe borrower has failed to make an installment payment when due, or to meet other terms of the promissory note.
 
Demand NoteA promissory note that is payable (due in full) whenever the holder demands payment.
 
DisbursementA transaction that occurs when a lender releases loan funds.
 
Due DiligenceThe efforts and practices of a lender, in the making, servicing, and collection of loans, which are at least as extensive and forceful as those generally practiced by financial institutions for consumer loans.
 
FDSLPFederal Direct Student Loan Program.
 
Federal Reserve
Regulation
The truth-in-lending law that requires disclosure of finance charges and the annual percentage rate.
 
Financial NeedThe difference between the student's educational costs and the Assessed Family Resources.
 
FFELPFederal Family Education Loan Programs, formerly known as the GSL -- Guaranteed Student Loan Programs.
 
ForbearancePermitting the temporary cessation of payments or accepting smaller payments than were previously scheduled. Forbearance is granted at the discretion of the lender except that it is mandatory for a lender to grant forbearance on Stafford and SLS loans to a physician still in residency.
 
Grace PeriodA 6- or 9-month period before the borrower enters a repayment period. The grace period begins on the day the student ceases to be at least a half-time student at a participating school (see Renewable Grace Period).
 
GuarantorA state agency or private, nonprofit institution or organization which administers a student loan insurance program. The institution or organization guarantees repayment of student loans to private lenders in the event a borrower dies, becomes permanently and totally disabled, has a loan discharged in bankruptcy, or defaults.
 
Holder (Lender or Payee)Harvard University, a bank, a credit union, etc.
 
Holder in Due Course
(Bearer in Due Course)
A person or entity other than the original holder who holds a legally effective promissory note and has the right to collect from the borrower.
 
InsolvencyThe inability to make payments.
 
Installment Note
(Renewal Note)
A new note written to satisfy the terms of a previously signed demand note. The installment note specifies a repayment schedule.
 
MakerThe borrower.
 
Promissory NoteThe legal and binding contract signed between the lender and the borrower which states that the borrower will repay the loan as agreed upon in the terms of the contract.
 
Renewable Grace PeriodUnder some loan programs, repayment does not begin or resume immediately after a deferment period ends. This period before repayment begins, but after deferment ends, is in addition to the original grace period. No loans issued after 10/1/81 have a renewable grace period and only some loan programs had this feature previously.
 
Renewal NoteSee Installment Note.
 
Sealed InstrumentIn Massachusetts, a sealed instrument provides for fewer limitations on the lender's ability to collect a note. It changes the statute of limitations for collections of a note from 6 to 20 years.
 
ServicerAn organization that acts on behalf of the lender to administer their student loan portfolio and is paid a fee to do so.
 
Student Aid Report
(SAR)
The form a student receives after filing a FAFSA application. The SAR notifies the student of his eligibility for federal student aid.
 
Subsidized LoanA subsidized loan is awarded on the basis of financial need, which is determined by the information provided on the Free Application for Federal Student Aid (FAFSA). For those who qualify for a subsidized loan, the federal government pays interest on the loan (subsidizes the loan) until repayment begins and during authorized periods of deferment thereafter.
 
Unsubsidized LoanA loan on which the student is responsible for paying the interest that accrues on the loan from the date of disbursement until the loan is paid in full, regardless of enrollment status.
 
Waives Presentment,
Demand Notice, Protest
and All Other Demands
The borrower cannot claim that payment is not due because the lender did not notify or bill him/her before the due date. It is the borrower's responsibility to make payments when due, even if the lender has not sent a bill or coupon repayment book.
 

Last modified: December 02, 2013