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Glossary

Adjusted Gross Income (AGI)

Your or your family’s wages, salaries, interest, dividends, etc., minus certain deductions from income as reported on a federal income tax return. Commonly referred to as AGI.

Administrative Wage Garnishment (AWG)

A tool that allows the federal government or your guaranty agency to have your employer withhold a portion of your earnings to collect unpaid non-tax debts that you owe to the federal government. If you have a federal student loan in default, up to 15% of your disposable pay could be taken by the federal government or your guaranty agency to repay your debt.

Cancellation

The release of the borrower’s obligation to repay all or a designated portion of principal and interest on a student loan. Also called discharge or forgiveness of a loan.

Capitalization

The addition of unpaid interest to the principal balance of a loan. When the interest is not paid as it accrues during periods of in-school status, the grace period, deferment, or forbearance, your lender may capitalize the interest. This increases the outstanding principal amount due on the loan and may cause your monthly payment amount to increase. Interest is then charged on that higher principal balance, increasing the overall cost of the loan.

Collection Agency

An entity that recovers unpaid debt from borrowers who have defaulted on their loans.

Collection Costs

Expenses charged on defaulted federal student loans that are added to the outstanding principal balance of the loan. These expenses can be up to 18.5 percent of the principal and interest for defaulted Direct Loans or FFEL Program loans and may exceed 18.5 percent for defaulted Federal Perkins Loans and Health and Human Service (HHS) loans.

Consolidation

The process of combining one or more loans into a single new loan.

Credit Bureau

An organization that tracks and reports your credit, including your history of paying bills and calculates your ability to repay future loans. For example, if you default on a student loan, it is reported to a credit bureau, and other lenders may be less likely to extend credit to you in the future.

Default

Failure to repay a loan according to the terms agreed to in the promissory note. For most federal student loans, you will default if you have not made a payment in more than 270 days. You may experience serious legal consequences if you default.

Deferment

A postponement of payment on a loan that is allowed under certain conditions and during which interest does not accrue on Direct Subsidized Loans, Subsidized Federal Stafford Loans, and Federal Perkins Loans. All other federal student loans that are deferred will continue to accrue interest. Any unpaid interest that accrued during the deferment period may be added to the principal balance (capitalized) of the loan(s).

Delinquent

A loan is delinquent when loan payments are not received by the due dates. A loan remains delinquent until the borrower makes up the missed payment(s) through payment, deferment, or forbearance. If the borrower is unable to make payments, he or she should contact his or her loan servicer to discuss options to keep the loan in good standing.

Direct Loan

A federal student loan, made through the William D. Ford Federal Direct Loan Program, for which eligible students and parents borrow directly from the U.S. Department of Education at participating schools. Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans are types of Direct Loans.

Direct PLUS Loan

A loan made by the U.S. Department of Education to graduate or professional students and parents of dependent undergraduate students for which the borrower is fully responsible for paying the interest regardless of the loan status.

Disbursement

Payment of federal student aid funds to the borrower by the school. Students generally receive their federal student loan in two or more disbursements.

Discharge

The release of a borrower from the obligation to repay his or her loan.

Discretionary Income

For Income-Based Repayment and Pay As You Earn, discretionary income is the difference between your income and 150 percent of the poverty guideline for your family size and state of residence.
For Income-Contingent Repayment, discretionary income is the difference between your income and 100 percent of the poverty guideline for your family size and state of residence.
The poverty guidelines are maintained by the U.S. Department of Health and Human Services and are available at www.aspe.hhs.gov/poverty

Federal Family Education Loan (FFEL) Program

Under this program, private lenders provided loans to students that were guaranteed by the federal government. These loans included Subsidized Federal Stafford Loans, Unsubsidized Federal Stafford Loans, FFEL PLUS Loans, and FFEL Consolidation Loans. Federal student loans under the FFEL Program are no longer made by private lenders. Instead, all new federal student loans come directly from the U.S. Department of Education under the Direct Loan Program.

Federal Perkins Loan (FFEL) Program

A federal student loan, made by the recipient’s school, for undergraduate and graduate students who demonstrate financial need

Federal Student Aid PIN

Note: The Federal Student Aid PIN was phased out on May 10, 2015 and it was replaced with a FSA ID. The PIN was an electronic personal identification number that served as a student’s or parent’s identifier to allow access to personal information in various U.S. Department of Education systems and acted as a digital signature on some online forms.

Federal Student Aid Programs

The programs authorized under Title IV of the Higher Education Act of 1965 that provide grants, loans and work-study funds from the federal government to eligible students enrolled in college or career school.

Federal Student Loan

A loan funded by the federal government to help pay for your education. A federal student loan is borrowed money you must repay with interest.

FFEL Program

Federal Family Education Loan Program

Forbearance

A period during which your monthly loan payments are temporarily suspended or reduced. Your lender may grant you a forbearance if you are willing but unable to make loan payments due to certain types of financial hardships. During forbearance, principal payments are postponed but interest continues to accrue. Unpaid interest that accrues during the forbearance will be added to the principal balance (capitalized) of your loan(s), increasing the total amount you owe.

Free Application for Federal Student Aid (FAFSA)

The FREE application used to apply for federal student aid, such as federal grants, loans, and work-study.

FSA ID

The FSA ID is a username and password combination that serves as a student’s or parent’s identifier to allow access to personal information in various U.S. Department of Education systems and acts as a digital signature on some online forms.

Grace Period

A period of time after borrowers graduate, leave school, or drop below half-time enrollment where they are not required to make payments on certain federal student loans. Some federal student loans will accrue interest during the grace period, and if the interest is unpaid, it will be added to the principal balance of the loan when the repayment period begins.

Grant

Financial aid, often based on financial need, that does not need to be repaid (unless, for example, you withdraw from school and owe a refund).

Income Tax Refund Withholding

A debt collection tool that allows the government to seize income tax refunds from individuals who owe the federal government to help repay the outstanding debt. This tool may be used for federal student loans borrowers who are in default.

Loan Date

For Direct Loans and Perkins Loans, the loan date (as listed in a student’s My Federal Student Aid record) is the date of the first disbursement. For Federal Family Education Loan (FFEL) Program loans, the loan date is usually the date the loan was guaranteed, or backed, by a guaranty agency.

Loan Forgiveness

The cancellation of all or some portion of your remaining federal student loan balance. If your loan is forgiven, you are no longer responsible for repaying that remaining portion of the loan.

Loan Holder

The entity that holds the loan promissory note and has the right to collect from the borrower.

Loan Rehabilitation

The process of bringing a loan out of default and removing the default notation from a borrower’s credit report. To rehabilitate a Direct or a FFEL Loan, the borrower must make at least nine full payments of an agreed amount within 20 days of their monthly due dates over a 10-month period. To rehabilitate a Perkins Loan, a borrower must make nine on-time, consecutive monthly payments of an agreed-upon amount. Rehabilitation terms and conditions vary for other loan types and can be obtained directly from loan holders.

Loan Servicer

A company that collects payments, responds to customer service inquiries, and performs other administrative tasks associated with maintaining a federal student loan on behalf of a lender.

Master Promissory Note

A binding legal document that you must sign when you get a federal student loan. The MPN can be used to make one or more loans for one or more academic years (up to 10 years). It lists the terms and conditions under which you agree to repay the loan and explains your rights and responsibilities as a borrower. It’s important to read and save your MPN because you’ll need to refer to it later when you begin repaying your loan or at other times when you need information about provisions of the loan, such as deferments or forbearances.

My Federal Student Aid

This feature, available at StudentAid.gov/login, provides access to information on federal grants and loans as stored in the National Student Loan Data System (NSLDS®). My Federal Student Aid contains information on how much aid you’ve received, your enrollment status, and your loan servicer(s). You can access My Federal Student Aid using your FSA ID.

Partial Financial Hardship

An eligibility requirement for the Income-Based Repayment (IBR) and Pay As You Earn plans.
For IBR, a circumstance in which the annual amount due on your eligible loans, as calculated under a 10-year Standard Repayment Plan, exceeds 15 percent of the difference between your adjusted gross income (AGI) and 150 percent of the poverty line for your family size in the state where you live.
For Pay As You Earn, a circumstance in which the annual amount due on your eligible loans, as calculated under a 10-year Standard Repayment Plan, exceeds 10 percent of the difference between your adjusted gross income (AGI) and 150 percent of the poverty line for your family size in the state where you live.
For both plans, the amount that would be due under a 10-year Standard Repayment Plan is calculated based on the greater of the amount owed on your eligible loans when you originally entered repayment, or the amount owed at the time you selected the IBR or Pay As You Earn plan.

PLUS Loan

A loan available to graduate students and parents of dependent undergraduate students for which the borrower is fully responsible for paying the interest regardless of the loan status.

Principal

The total sum of money borrowed plus any interest that has been capitalized.

Private Loan

A nonfederal loan made by a lender such as a bank, credit union, state agency, or school.

Qualifying Public Services

For the purposes of the Public Service Loan Forgiveness Program, a not-for-profit organization that is not tax-exempt under Section 501(c)(3) of the Internal Revenue Code is considered a qualifying employer if it provides at least one of the following public services:

  • Emergency management
  • Military service
  • Public safety
  • Law enforcement
  • Public interest law services
  • Early childhood education (including licensed or regulated child care, Head Start, and state funded pre-kindergarten)
  • Public service for individuals with disabilities
  • Public service for the elderly
  • Public health
  • Public education
  • Public library services
  • Other school-based services

Law enforcement includes organizations that are publicly funded and whose principal purposes include crime prevention, control or reduction of crime, or the enforcement of criminal law.
Public health includes organizations that employ nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health support occupations, as such terms are defined by the Bureau of Labor Statistics.
Public interest law refers to legal services provided by an organization that is funded in whole or in part by a local, state, federal, or tribal government.

Subsidized Loan

A loan based on financial need for which the federal government pays the interest that accrues while the borrower is in an in-school, grace, or deferment status. For Direct Subsidized Loans first disbursed between July 1, 2012, and July 1, 2014, the borrower will be responsible for paying any interest that accrues during the grace period. If the interest is not paid during the grace period, the interest will be added to the loan’s principal balance.

Unsubsidized Loan

A loan for which the borrower is fully responsible for paying the interest regardless of the loan status. Interest on unsubsidized loans accrues from the date of disbursement and continues throughout the life of the loan.

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