Federal Student Loan Program Glossary
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
A
Accrued Interest: The interest on a student loan that begins to accrue (accumulate) after a student completes school. This interest is charged on the principal (dollar) amount of the loan.
Administrative Cost Allowance (ACA): Monies the federal government may pay a guaranty agency as reimbursement for administrative expenses incurred in the operation of its program. Agencies apply annually and are paid quarterly for ACA.
Alternative Repayment: A repayment plan the Servicing Center provides to a borrower who adequately demonstrates that the terms and conditions of the four FDLP repayment plans do not accommodate the borrower's exceptional circumstances.
B
Borrower: Person responsible for repaying a loan who has signed and agreed to the terms in the promissory note.
C
Capitalizing Interest: Adding accumulated interest to the loan principal rather than having the borrower make monthly interest payments. Capitalizing interest increases the principal amount of the loan and, therefore, the total cost of the loan.
Cash Reserve Ratio: The amount of cash reserves that an agency holds divided by the original principal of outstanding loans.
Cash Reserves: An agency's cumulative sources of funds minus an agency's cumulative uses of funds to pay.
CBO: The Congressional Budget Office determines the costs of government programs and of changes being proposed by Congress.
Cohort: Borrowers who enter repayment in a given fiscal year.
Cohort Default Rates: The rate calculated by dividing the number of borrowers who defaulted at the end of the specified time interval, by the total number of borrowers in the cohort. A cohort of student borrowers who entered repayment in the same year may be tracked over a specific time interval to determine the percentage of students who default on their loans. (A cohort default rate may also be based on the total dollar amount loaned to students. In this case, the rate would be expressed as the percentage of dollars borrowed that are defaulted.)
Collection Costs: Costs the government incurs when collecting a delinquent or defaulted loan. These costs are charged to the borrower.
Collections: Amounts collected by guaranty agencies or the federal government from borrowers after default claims are paid to lenders.
Commitment (Direct Loans): For the FDLP, a commitment occurs when the Department receives and accepts an origination record and a signed promissory note from the borrower.
Commitment (FFEL program): In the FFEL program, a commitment occurs when the guaranty agency issues a commitment to the lender for a loan.
Consolidation Loans: Loans under the FDLP or FFEL in grace or repayment status are eligible for consolidation. Consolidation occurs when a borrower with multiple loans requests that all of his or her loans be consolidated into one loan. Repayment begins 60 days after discharge of prior loans; certain deferments are authorized.
Constant Dollars: Dollars adjusted using a price index to eliminate inflationary factors. This adjustment facilitates direct comparison over time.
D
Default: Failure to repay a loan in accordance with the terms of the promissory note.
Deferment: The temporary postponement of loan payments.
Delinquency: Incidents of late or missed loan payments, as specified in the terms of the promissory note and the selected repayment plan.
Dependent Student: A student that is financially dependent upon a parent or legal guardian or a student who does not meet certain criteria for being classified as independent.
Disbursement: When loan proceeds are paid by the school to the student or parent borrower.
Discharge: The release of borrowers from their obligations to repay their loans. Borrowers must meet certain requirements to be eligible for discharges.
E
ECMC: Educational Credit Management Corporation is a federally-funded guaranty agency, which guarantees loans for lenders in various states.
Entitlement: A contractual right, granted by the law, for a person or entity to demand a payment or other benefit from the government.
Exit Counseling: A group or individual session during which borrowers who are leaving school or dropping below half-time enrollment receive information about their repayment obligations and update information about themselves.
Expected Family Contribution (EFC): The amount that a family can be expected to contribute toward college costs according to federal financial aid formulas.
Extended Repayment Plan: A plan that requires the borrower to pay at least $50 a month and allows up to 30 years to repay, depending on the amount borrowed.
F
Federal Direct Loan Program (FDLP): The William D. Ford Federal Direct Loan Program, also referred to as the Direct Loan Program, is a federal program that was authorized under by the Student Loan Reform Act of 1993. FDLP provides low-interest loans to students. These loans are originated by participating institutions with capital provided directly through the U.S. Department of Education, which is the sole lender. Several loan programs exist under the umbrella of FDLP. These loans are the Stafford Subsidized loan program, the Stafford Unsubsidized loan program, the Parent Loan for Undergraduate Students (PLUS), and Consolidation loans.
Federal Family Education Loan (FFEL) program: The Federal Family Education Loan FFEL program is formerly known as Guaranteed Student Loans (GSL). Loan funds are provided primarily by commercial lenders but principal and interest are guaranteed by the federal government through federally-funded guarantee agencies. The same loan programs that exist under FDSL also exist under FFEL:the Stafford Subsidized program, the Stafford Unsubsidized program, the Parent Loans for Undergraduate Students (PLUS), the Supplemental Loan for Students (SLS), and Consolidation loans.
FDLP: See Federal Direct Loan Program.
FFEL: See Federal Family Education Loan Program.
Fiscal Year (FY): The annual accounting year for the federal government begins on October 1 and ends the following September 30. The fiscal year is designated by the calendar year in which it ends. For example, the FY 1996 begins on October 1, 1995 and ends on September 30, 1996.
Forbearance: An arrangement to postpone or reduce a borrower's monthly payment amount for a limited and specified period, or to extend the repayment period. The borrower's interest is charged and accrues during forbearance.
Foreign Borrowers: Borrowers who attend eligible foreign institutions.
G
GAO: The Government Accountability Office (formerly the U.S. General Accounting Office) is the auditing arm of Congress, and is led by the Comptroller General of the United States.
Grace Period: A six-month period before the first payment must be made on a Stafford Subsidized or Stafford Unsubsidized loan. The grace period starts the day after a borrower ceases to be enrolled at least half time. During the grace period on an Unsubsidized loan, accumulating interest must be paid or it will be capitalized.
Graduated Repayment Plan: A plan that allows monthly payment amounts to start out at one level and then increase every two years during the repayment period. Borrowers have up to 30 years to repay, depending on the amount they borrowed. The minimum payment must cover interest that accumulates monthly and must be at least half of the payment that would be required under the Standard Repayment Plan. The maximum amount may not be more than 1-1/2 times the payment that would be required under the Standard Repayment Plan.
Grant: Financial assistance that does not need to be repaid.
Guarantee Agency (GA): A state or private nonprofit agency that has an agreement with the Secretary to administer the FFEL (Guaranteed Student Loan) programs. The agency insures lenders against losses due to a borrower's default. Also called "guarantor" or "guaranty agency."
H
Half-time Student: A student who is carrying an academic workload that is considered at least one-half the workload of a full-time student (as determined by the school).
HEA: The Higher Education Act is the law that authorizes most of the federal programs that relate to financial aid for college.
HEAF: Higher Education Assistance Foundation was a guaranty agency that collapsed.
I
Income Contingent Repayment Plan: Available only in the FDLP, this plan that allows the monthly payment amount to vary with the borrower's income, with any amounts remaining after 25 years forgiven.
Income Sensitive Repayment Plan: A plan that allows the monthly payment amount to vary with the borrower's income, except that all principal and interest must be fully repaid within 25 years.
Independent Student: A student who meets one of the following criteria:the student is 24 years or older, a graduate or professional student, married, orphaned or a ward of the court, veteran of the armed services, or has documents describing circumstances of independence.
In-School Period: Under the Stafford Subsidized loan program, the period during which a borrower pursues his or her studies as at least a half-time student at a participating school. This period begins with the date of disbursement and ends with the beginning of the grace period. During the in-school period, borrowers are not charged interest (in FFEL, the federal government pays lenders interest benefits and special allowance).
Insurance Premium: The amount charged to a borrower by a guarantee agency for insuring the lender against losses on guaranteed loans.
Interest: A loan expense charged by the lender and paid by the borrower for the use of borrowed money. The expense is calculated as a percentage of the principal amount (loan amount) borrowed.
Interest Benefits: Under the Subsidized Stafford loan program, the government covers a borrower's interest payments during the in-school and grace periods, and during any authorized deferment periods.
IRS Offset: When other collection efforts fail, the Department of Education turns over a defaulted borrower's account to the Internal Revenue Service (IRS). This IRS offsets the debt against the defaulter's income tax refund.
L
Lenders' Default Claims Rate: The ratio of default claims paid since program inception to all loans that have entered repayment (matured paper) since program inception. The default rate does not reflect any collection activity subsequent to the default. Commonly referred to as the gross default rate.
Loan: Money borrowed that must be repaid.
Loan Limits: Limits placed on student borrowers in terms of the maximum numbers of dollars they may obtain through federally funded student financial assistance programs. Loan limits vary by type of loan, academic level, program length, and whether a student is dependent or independent. Here is one example of Stafford Subsidized and Unsubsidized loan limits for FFEL and FDLP loans to independent students when program length or the enrollment period is one academic year:Independent Students Stafford Subsidized loans Stafford Subsidized and Unsubsidized Freshmen $2,625 $ 6,625 Sophomores 3,500 7,500 Juniors-Seniors 5,500 10,500 Graduate & Professional 8,500 18,500
Loan Principal: The total sum of money borrowed.
Loan Volume: Refers to the dollar amount or number of loans committed.
Loans in Repayment: Loans that have entered the repayment period after expiration of the grace period.
M
Mandatory Assignments: assigned to the Department of Education after the guaranty agency has made the required effort to collect on defaulted loans.
Matured Paper: The cumulative dollar amount of loans that have ever entered repayment. It is a measurement equal to the cumulative dollar amount of loans disbursed since the program's inception less the dollar amount of loans in the in-school and grace periods.
N
Net Cost of Loan Defaults: The cost of the loan default claims minus the collections that are made on the defaulted loans.
O
OMB: The Office of Management and Budget is responsible for the overall budget of the United States government, and for the efficient operation of government agencies.
Operating Expenses: Expenses incurred by a guaranty agency, such as salaries, travel, computer hardware and software, equipment, rent, supplies, and contractor costs.
Origination Fee: A fee charged and deducted from the proceeds of an loan before the loan is disbursed. In the federal loan programs, the origination fee is paid to the government to offset its costs.
P
PLUS Loan (FDLP or FFEL): Parent Loans for Undergraduate Students. Loans taken out by parents for the purpose of helping to pay for their children's undergraduate education. Parents are responsible for all interest charges. The loan value may not exceed the full cost of the student's education, minus any other financial aid that the student receives.
Prepayment: Any amount paid on a loan by the borrower before it is required to be paid under the terms of the promissory note. There is never a penalty for prepaying principal or interest on federal student loans.
Promissory Note: A legally binding contract between a lender and a borrower. The promissory note contains the terms and conditions of the loan, including how and when the loan must be repaid.
Proprietary Institutions: Postsecondary institutions that are operated for profit.
R
Rehabilitation Loans: When 12 consecutive payments have been made on a formerly defaulted loan, it can become a rehabilitation loan. Once a loan becomes rehabilitated, it becomes a new loan. A borrower again becomes eligible for participation in Title IV programs.
Reinsurance Payments (Reinsurance Default Claims): Monies the federal government gives a guarantee agency as reimbursement for payments made to lenders for losses due to borrower default.
Repayment Period: The period, which a borrower is responsible for repaying his or her loan. In the case of Stafford loans, this period begins on the day after the last day of the grace period. In the case of PLUS and SLS loans, this period begins on the day the loan is disbursed. The maximum repayment period is ten years, not including any authorized deferment or forbearance periods.
Repayment Schedule: A statement provided to the borrower that lists the amount borrowed, the amount of monthly payments, and the date payments are due.
S
Sallie Mae: This for-profit company was created by Congress in 1974 to increase the availability of student loans by serving as a secondary market (purchasing loans from banks so the banks can make new loans). While the company's federal charter as a government-sponsored enterprise will soon expire, all of its student loan assets continue to be fully backed by U.S. taxpayers.
Secondary Market: An institution or organization that purchases eligible student loans and provides lenders with a source of liquidity to make new loans. Congress established Sallie Mae as a national secondary market. In addition, other secondary markets operate in a number of States at either the state or regional level.
Special Allowance: A quarterly supplemental interest payment to lenders based on the outstanding principal balance of Stafford, PLUS, SLS and Consolidation loans. This payment assures that, as a complement to the borrower's interest rate, the lenders receive a guaranteed yield on their loans even when interest rates change.
Stafford Subsidized Loan (FDLP and FFEL): A federally subsidized student loan made on the basis of the student's financial need and other specific eligibility requirements. Stafford Subsidized loans have subsidized interest, which means that the federal government covers the interest on these loans while borrowers are enrolled at least halftime, during the six-month grace period following graduation, or during authorized periods of deferment. Stafford Subsidized loans are available to undergraduate and graduate students while the student is in school. The borrower begins to repay the principal and interest after leaving school.
Stafford Unsubsidized Loan (FDLP and FFEL): These loans are made to borrowers meeting specific eligibility requirements. Interest is charged throughout the life of the loan. The borrower may choose to pay the interest charged on the loan or allow the interest to be capitalized (added to the loan principal).
Standard Repayment Plan: A plan that requires a borrower to pay at least $50 a month and allows up to 10 years to repay.
Subsidy rate: The current value, expressed as a percentage, of the long-term stream of income and expenses to the government from a direct or guaranteed loan. Generally does not include the government's own administrative expenses.
T
Title IV: The portion of the Higher Education Act (see HEA) that includes most of the federal financial aid programs.
U
USAF: United Student Aid Funds is a guaranty agency, which is the designated guarantor for several states.
V
Variable Interest: Rate of interest on a loan that is tied to a stated index and changes annually every July 1 as the index changes.
W
Warehousing Advances: Advances provided to lenders to invest in additional student loans. This enables the lenders to finance their new and outstanding student loan portfolios without depleting their funds.