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Student Loan Term Definitions

Define Accrued Interest:  
The amount of interest, calculated daily, that has accumulated on the unpaid amount of your loan. 
 
Define ACT:  
American College Testing (ACT) publishes the ACT Assessment Test, commonly known as the ACT. It is a standardized, multiple-choice test used by some colleges as part of the admissions process that is administered five times a year. The ACT measures academic achievement in four areas: English, Math, Reading, and Science. 
 
Define Adjusted Gross Income: 
Taxable income from all sources. (See your Federal Income Tax Form 1040 EZ, line three, or Form 1040, line 31.) 
 
Define Amortization:  
The reduction of loan balance by your monthly payments. 
 
Define Assets:  
Items of financial worth which may include your home, business, savings and checking accounts, stock, bonds, real estate, trust funds, etc. 
 
Define Award Letter: 
This official document issued by a college's Financial Aid Office lists all of the financial assistance offered to a student. 

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Define Borrower:  
The person to whom a loan is made and who agrees to repay it. The borrower signs a promissory note, which serves as the formal promise to repay the loan. 
 
Define Capitalization:  
A process of adding unpaid interest to the principal balance of your loan. This will increase the balance due and may increase monthly payments. 
 
Define Co-Borrower (Signer):  
A co-borrower is a second or additional party who receives the loan proceeds and agrees to repay the loan. 
 
Define Co-Signer: A signer of a promissory note who agrees to pay the loan if the Borrower defaults. 
 
Define Cost of Attendance (COA): 
The total amount a student must pay to attend school for one academic year, .including tuition, room and board, books, supplies, transportation, and personal expenses. A college's Financial Aid Office determines this figure. 
 
Define Credit-Based Loans: 
Loans (i.e. PLUS or CitiAssist® Loans) that are made to you based on your credit worthiness as opposed to Federal Stafford Loans and grants which are determined through a need analysis process based mostly on the cost of education. 
 
Define Default: 
Failure to pay your loan according to the terms disclosed on your promissory note. You are in default on a FFEL Program Loan if your payments are more than 270 days past due or if you fail to comply with other terms of the loan. 

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Define Deferment: 
A period of time during repayment in which the borrower, after meeting certain criteria, is not required to make their regular monthly payments. Note: interest payments mayor may not be postponed depending on the type of loan. For Federal Family Education Loan Deferments, check out the Deferment Eligibility List. For deferment information on CitiAssist® Loans, click here. 
 
Define Delinquent:  
If a payment is not received by the due date, it is considered delinquent. Delinquencies greater than 30 days are generally reported to national credit bureaus. 
 
Define Direct Lending Schools:
Institutions of higher education which have chosen to place all of their students' federally insured student loans through the Federal Direct Lending Program. Such colleges or universities may either participate exclusively in the Direct Lending Program or allow students (borrowers) to choose the lending program from which to borrow. 
 
Define Disbursement Notification:  
A letter that is sent to you acknowledging that your loan is approved and letting you know when the money will be sent to your school, as well as the loan amount and any fees (origination or guarantee). This marks the successful completion of the loan application process. 
 
Define Disclosure Statement:  
A notification of the actual cost and terms of a loan, which includes the interest rate and any additional finance charges. 
 
Define Education Savings Account (IRA):  
This newly established (1998) IRA allows a related taxpayer to deposit up to $500 per year for each child under the age of 18. Interest earned on this type of IRA will be tax-free.  In addition, withdrawals from an Education IRA will be tax-free as long as the withdrawals are used for educational expenses. The maximum contribution to an Education IRA is reduced on a pro-rata basis for single taxpayers with income of $95/000 - $110/000 and joint taxpayers with income of $150/000-$160,000. Above the maximum income level, the allowed contribution is zero. 
 
Define EFT (Electronic Funds Transfer):  
The process whereby your bank sends the loan proceeds electronically to your school if the school participates in this program. 
 
Define Eligible Citizen:  
A United States citizen, U.S. national, or resident of certain U.S. territories who qualify to borrow under the FFEL or FDL student lending programs. 
 
Define Eligible Non-Citizen:  
A permanent resident of the United States who is able to present evidence from the Immigration and Naturalization Service that he or she is in the US for other than a temporary purpose with the intention of becoming a citizen or permanent resident. 
 
Define Exit Interview:  
An in-person or online counseling session with the school's Financial Aid Office before graduation or withdrawal to review the terms and obligations of your student loan. 
 
Define Expected Family Contribution (EFC):  
The amount a family is expected to pay toward college costs. This amount is determined via the FAFSA process by a need analysis formula established by the federal government and can be found on your Student Aid Report (SAR). 
 
Define FAFSA:  
The Free Application for Federal Student Aid (FAFSA) is a standard federal form used to determine your eligibility for most types of financial aid including Federal Government backed loans. The FAFSA is typically completed early in the year and it requires income, asset, and tax information from the students and/or parents. 
 
Define Federal Family Education Loan (FFEL) Program:  
A loan program authorized by the Federal Government in the Higher Education Act of 1965, as amended. This program includes Federal Stafford, PLUS and Consolidation Loans. These loans are funded by lenders, guaranteed by guaranty agencies and ultimately insured by the Federal Government. 
 
Define Forbearance:  
A temporary postponement of principal and interest payments during which the borrower may only pay the interest on the loan. If the borrower chooses not to pay the interest, it will be capitalized at the end of the period. 
 
Define Financial Aid Package:  
The total amount of monetary assistance available to the student including all grants, scholarships, work-study and loans available from school, state and federal programs, as listed in a college's financial aid award letter. It does not include alternative, non-federally guaranteed loans such as CitiAssist® Loans. 
 
Define Financial Need (or Aid Eligibility): 
The difference between the total cost of attendance and the Expected Family Contribution. 
 
Define Federal Supplemental Educational Opportunity Grants (FSEOG): 
Government grants distributed by colleges, at their discretion, to students based on need. 
 
Define Good thru Date for Payoff: 
The date your payoff amount should arrive at the lender or servicing agent. 
 
Define Grace Period:  
An amount of time allowed before principal repayment of a loan must begin after a student graduates, leaves school or drops below half-time status. No payments on your student loans are required during this time. Details of your grace period are specified in your promissory note and are not available for all loans. 
 
Define Grants: 
A form of financial aid, similar to scholarships, that do not have to be repaid.  It allows lenders to use a single MPN instead of requiring borrowers to sign a new promissory note for additional advances. 

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Define Multiple Disbursements:  
Loan proceeds that are paid in more than one check or electronic transaction. For example, a portion of a loan may go towards the first semester of school and the balance for the second semester. 
 
Define Non-Direct Lending Schools:  
Institutions of higher education which have chosen to place their students' federally insured student loans through the Federal Family Education Loan Program (FFELP). In the FFEL program, borrowers choose a lender from which to borrow and the lender then obtains a loan guarantee from a state or private guarantee agency. 
 
Define Origination Fee:  
A sum charged by the Federal Government on FFEL loans to offset the cost of processing the loan. The amount of the fee is deducted from the dollar amount of your loan by the lender and paid to the U.S. Department of Education. 
 
Define Payment Schedule:  
A summary of the terms of a loan, which includes the total principal amount, the date payment begins and the interest rate. 
 
Define Payoff Balance:  
This is the total amount you would owe if you were to payoff your entire loan. It includes the outstanding principal plus any unpaid accrued interest. 
 
Define Pell Grants:  
One of the largest sources of grants, Pell Grants are distributed by the Federal Government and are designed to help students with financial need pay for college. 
 
Define Perkins Loans:  
A campus-based, low interest loan for graduate and undergraduate students. The college acts as the lender using a limited pool of funds provided by the federal government. These loans are awarded based on exceptional financial need. 
 
Define PLUS (Parent Loans for Undergraduate Students):
These are loans under the FFEL program for parents of dependent undergraduate students. They require a credit check. The interest rate is low and repayment begins 60 days after disbursement. 
 
Define Principal:  
The dollar amount of the loan that must be repaid upon maturity, and upon which interest will be charged. 
 
Define Principal Balance: 
The outstanding amount you owe, excluding accrued but unpaid interest. 
 
Define Promissory Note:  
The binding document a borrower signs to obtain a loan. The note includes all the term5 and conditions of the loan and the borrower' 5 proml5e to repay the loan with interest. 
 
Define Gross Income:  
Your income before taxes and deductions. 
 
Define Guarantee/Insurance Fee:
A sum charged by the guaranty agency to insure a loan. The guarantee fee (sometimes called an insurance fee) is deducted from the principal amount of your loan and paid by your lender to the guaranty agency. 
 
Define Guaranty Agency:  
A state or non-profit organization, which has an agreement with the Secretary of Education under the Higher Education Act to insure student loans made by lenders. 
 
Define HOPE Scholarship Tax Credit:  
This tax credit is available to those taxpayers who are paying education expenses for students enrolled in their first two years of college. The Hope Tax Credit is available for up to 100% of the first $1,000 of qualified tuition and related expenses (i.e. tuition and fees, but not room and board and books) and 50% of the second $1,000. The Hope Scholarship Tax Credit is for expenses paid after December 31, 1997. It will be reduced on a pro-rata basis for those who file a single tax return with incomes of $40,000-$50,000 and for those who file joint tax returns with incomes of $80,000-$100,000. (Single return tax filers with incomes of $50,000 and joint return tax filers with incomes of $100,000 and above will not be eligible for a deduction.) 

The Hope Scholarship Tax Credit is part of the Taxpayer Relief Act of 1997. 
 
Define Interest:  
The fee charged to borrow money, usually a percent of the outstanding amount, which accrues and is paid over the life of a loan. 
 
Define Late Fee:  
An administrative charge that a lender may assess if a student loan payment is not received within 15 days after its due date. 
 
Define Lifetime Learning Tax Credit:  
The Lifetime Learning Tax Credit is available to people beyond the first two years of undergraduate studies, graduate students or working U.S. citizens taking classes to improve or upgrade their job skills. It can be used for qualified tuition and related expenses (i.e. tuition and fees, but not room and board and books) paid by the taxpayers. The tax credit equals 20% of the first $5,000 of expenses paid by the taxpayer after June 30, 1998 through December 31, 2002 and 20% of the first $10,000 after January 1, 2003. The tax credits are reduced on a pro-rata basis for single return tax files with incomes of $40,000 - $50,000 and for joint return tax filers with incomes of $80,000 - $100,000. (Single 
return tax filers with incomes of $50,000 and joint return tax filers with incomes of $100,000 and above will not be eligible for a deduction.) The Lifetime Learning Credit is part of the Taxpayer Relief Act of 1997. 
 
Define Loan:  
A sum of money borrowed (principal) usually for a specific reason (e.g., to obtain an education, buy a car, etc.). The entity lending the money (e.g. a bank) usually charges interest for use of the money. The amount of money borrowed is typically repaid with interest over a period of time. 
 

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