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Loan Glossary

Alternative Repayment - A repayment plan the Servicing Center provides to a borrower who adequately demonstrates that the terms and conditions of the four Direct Loan Repayment plans do not accommodate his/her exceptional circumstances.

Borrower - Person responsible for repaying a loan, who has signed and agreed to the terms in the promissory note.

Capitalization - Adding accumulated interest to the loan principal rather than having the borrower make interest payments. Capitalizing interest increases the principal amount of the loan and the total cost of the loan.

Collection Costs - Costs the government incurs when collecting a delinquent or defaulted loan. These costs are charged to the borrower.

Consolidation - Consolidation is similar to refinancing, but there is no loan fee. It simplifies loan repayment by combining several types of federal education loans into one new loan. (In the case of Direct Loan consolidation, the interest rate may be lower than one or more of the underlying loans.)

Default - Failure to repay a loan in accordance with the terms of the promissory note.

Deferment - A 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.

Direct Loan Servicing Center - The place where Direct Loan Borrowers send their loan payments, the Service Center can answer questions you might have about your Direct Loan.

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

Exit Counseling - A group or individual session during which Direct Loan borrowers, who are leaving school or are dropping below half-time enrollment, receive important information about their repayment obligations and are able to update information about themselves.

Extended Repayment Plan - 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.

Federal Direct Loan Program - The William D. Ford Federal Direct Loan Program, also referred to as the Direct Loan Program, is a federal program that provides loans to student and parent borrowers directly through the U.S. Department of Education. The Loans are Federal Direct Stafford/Ford Loans, Federal Direct Unsubsidized Stafford/Ford Loans, Federal Direct PLUS Loans and Federal Direct Consolidation Loans.

Federal Direct Subsidized Stafford/Ford - Also referred to as Direct Subsidized Loan, this federally financed student loan is made to students who meeteligibility requirements. The federal government does not charge interest on these loans while borrowers are enrolled at least half time, during the six-month grace period, or during authorized periods of deferment.

Federal Direct Unsubsidized Stafford/Ford - Also referred to as Direct Unsubsidized Loan, this federally financed student loan is made to students who meet eligibility requirements. Students need not demonstrate financial need. Interest is charged throughout the loan life of the loan. The borrower may choose to repay the interest charged on the loan, or allow the interest to be capitalized (added to the loan principal) when the loan enters repayment.

Forbearance - A postponement of payments or a reduction in monthly payment amounts for a limited and specified period of time during which a borrower is willing but unable to make loan payments. Forbearance may also be an extension of the repayment period. All borrowers are charged interest during forbearance.

Grace Period - A six-month before the first payment must be made on a Direct Subsidized or Unsubsidized Loan. The grace period begins the day after the borrower ceases to be enrolled on at least a half-time basis.

Graduated Repayment Plan - A plan that allows monthly payment amounts to start out at one level and then increases 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.

Interest - An expense of borrowing money that is calculated as a percentage of the amount borrowed.

Income Contingent Repayment Plan - A plan that allows the monthly payment amount to vary with the borrower's income. A borrower has up to 25 years to repay.

Loan -Money borrowed that must be repaid.

Loan Principal - The total sum of money borrowed.

Postponement - See "deferment" and "forbearance"

Prepayment - Any amount paid on a loan 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 Direct Loans.

Principal Balance - The amount owed on a loan or loans at any given time. The principal balance may include capitalized interest.

Promissory Note - A legally binding contract between the U.S. Department of Education and a borrower, the promissory note contains the terms and conditions of the loan, including how and when the loan must be repaid.

Repayment Period - The period during which a borrower is obligated to make payments on his or her loan(s).

Repayment Schedule - A statement provided by the Direct Loan Servicing Center to the borrower that lists the amount borrowed, the amount of monthly payments and the date payments are due.

Standard Repayment Plan - A plan that requires a borrower to pay at least $50 a month and allows up to 10 years to repay.