Repayment Glossary

There are many repayment programs available and it is important to understand all of your options. The following is a list of commonly used words and definitions to help you better understand the repayment section of CFNC.org.


Capitalization

Certification

Consolidation Loan

Default

Deferment

FAFSA

FAFSA PIN

FFELP

Forbearance

Grace Period

Guarantee Agency

Interest

Principal Balance

Promissory Note

Repayment Period

Repayment Wizard

Stafford Loan

Subsidized Loan

Unsubsidized Loan

 

Capitalization

Accrued interest is added to the borrower's outstanding principal. Subsequent interest accrues on the new total principal balance, which includes any capitalized interest. The borrower then pays interest on the interest.

Certification

The act of attesting that something is true or meets a certain standard. For example, the school certifies the borrower's eligibility for a loan and, if applicable, interest benefits. The borrower completes an application, promissory note, or deferment form, thereby certifying that certain eligibility criteria have been met.

Consolidation Loan

Loan program for eligible borrowers under which their obligations with respect to eligible student loans are paid off by a new loan that combines the aggregate indebtedness of eligible loans into a single debt.

Default

The failure of a borrower (or endorser or co-maker, if any) to make installment payments when due, or to meet other terms of the promissory note or other written agreement(s) with the lender under circumstances where the Department of Education or guarantor of the loan reasonably concludes that the borrower no longer intends to honor the borrower's obligation to repay a loan, provided that this failure persists for the most recent consecutive 270-day period (for a loan repayable in monthly installments) or the most recent 330-day period (for a loan repayable in less frequent installments).

Deferment

A period of time during repayment in which the borrower, upon meeting certain conditions, is not required to make payments of loan principal.

FAFSA (Free Application for Federal Student Aid)

The form the student must complete to apply for federal Title IV financial assistance, including Stafford loans. The student must include financial information on the student's household so that the expected family contribution can be calculated.

FAFSA PIN

An electronic signature that can be used by the borrower when completing a FAFSA application online.

Federal Family Education Loan Program (FFELP)

Loan program authorized by Title IV, part B of the Higher Education Act of 1965, as amended, including the Federal Stafford, Federal PLUS, Federal SLS, and Federal Consolidation Loan Programs. These loan programs are funded by lenders, guaranteed by guarantors, and reinsured by the federal government.

Forbearance

A period of time during which the borrower is permitted to temporarily cease making payments or reduce the amount of the payments. The borrower is liable for the interest that accrues on the loan during the forbearance period. Some forbearances are entitlements for eligible borrowers; others are granted at the discretion of the lender.

Grace Period

The period that begins after a Stafford loan borrower ceases to be enrolled at least half-time at an eligible school, ends the day before the repayment period begins, and during which payments of principal are not required. For a borrower with a Stafford loan that has not yet entered repayment who also has an SLS loan, the grace period for the SLS loan is the equivalent of the grace period for the Stafford loan if the borrower requests grace on his or her SLS loan(s).

Guarantee Agency

A state or private nonprofit organization that has an agreement with the U.S. Secretary of Education to administer a loan guarantee program under the Higher Education Act.

Interest

The charge made to a borrower for use of a lender's money.

Principal Balance

The outstanding amount of the loan, on which the lender charges interest. As the loan is repaid, a portion of each payment is used to satisfy interest that has accrued, and the remainder of the payment is used to reduce the outstanding principal balance.

Promissory Note

A legally binding agreement the borrower signs to obtain a loan under the FFELP, in which the borrower promises to repay the loan, with interest, in periodic installments. The agreement also includes information about any grace period, deferment, or cancellation provisions and the student's rights and responsibilities with respect to the loan.

Repayment Period

The period that commences after the expiration of the grace period during which the borrower must make regular installment payments of principal and interest. The maximum term of repayment is 120 months.

With SLS and PLUS loans, repayment occurs immediately after disbursement of the loan (exclusive of statutory deferments), since they do not receive a grace period.

Repayment Wizard

An online program designed to ask a series of questions for the borrower to answer in order to determine the borrower's eligibility for a deferment or forbearance.

Stafford Loan

The basic guaranteed student loan (previously known as GSL).

Subsidized Loan

A loan eligible for interest benefits paid by the federal government. The federal government pays the interest that accrues on subsidized loans during the student's in-school, grace, authorized deferment, and (if applicable) post-deferment grace periods, if the loan meets certain eligibility requirements.

Unsubsidized Loan

A non-need-based loan such as an unsubsidized Federal Stafford loan or a Federal PLUS loan. The borrower is responsible for paying the interest on an unsubsidized loan during in school, grace, and deferment periods, in addition to repayment periods.