Student Loan Glossary
Plain-language definitions for every student loan term — from your first disbursement to final forgiveness.
Accrued Interest
Interest that accumulates on your loan balance each day but has not yet been added to (capitalized into) your principal balance.
Amortization
The process of paying off a loan over time through regular scheduled payments. Each payment covers both principal and interest.
Annual Percentage Rate (APR)
The yearly cost of borrowing expressed as a percentage. For student loans, APR includes the interest rate plus any upfront fees.
Capitalization
When unpaid accrued interest is added to your principal loan balance. This increases the total amount you owe and causes you to pay interest on a larger balance going forward.
Cohort Default Rate (CDR)
The percentage of a school's federal student loan borrowers who enter default within a certain period after beginning repayment. Schools with high CDRs can lose access to federal aid.
Consolidation Loan
A Direct Consolidation Loan combines multiple federal student loans into a single loan with one servicer and a new weighted-average interest rate rounded up to the nearest 1/8th of 1%.
Default
Failure to repay a federal student loan according to the terms of the promissory note. Federal loans enter default after 270 days of non-payment.
Deferment
A temporary pause on loan payments during which interest may or may not accrue, depending on the loan type. Subsidized loans generally do not accrue interest during deferment.
Direct PLUS Loan
A federal loan available to graduate students and parents of dependent undergraduates (Parent PLUS). These loans carry a higher interest rate and an origination fee.
Direct Subsidized Loan
A federal loan for undergraduate students with demonstrated financial need. The government pays the interest while the borrower is in school at least half-time, during deferment, and during grace periods.
Direct Unsubsidized Loan
A federal loan available to undergraduate and graduate students regardless of financial need. Interest accrues from the day the loan is disbursed.
Discharge
The cancellation of a borrower's federal student loan balance, typically due to school closure, total and permanent disability (TPD), borrower defense to repayment, or death.
Discretionary Income
For federal IDR plans, this is generally defined as the difference between your Annual Gross Income (AGI) and 150% (or 225% under SAVE) of the federal poverty guideline for your household size and state.
Entrance Counseling
Required online guidance for first-time federal student loan borrowers that explains loan terms, repayment options, and borrower rights and responsibilities.
Exit Counseling
Required guidance for federal student loan borrowers when they graduate, leave school, or drop below half-time enrollment. It covers repayment options, loan servicer contact info, and default prevention.
Extended Repayment Plan
A federal repayment plan that stretches payments over up to 25 years. Available to borrowers with more than $30,000 in outstanding Direct Loans or FFEL loans.
FAFSA
The Free Application for Federal Student Aid — the form used to determine eligibility for federal grants, loans, and work-study programs based on family financial information.
Federal Family Education Loan (FFEL)
Older federal loans made by private lenders but guaranteed by the federal government. FFEL loans include Stafford Loans and FFEL PLUS Loans. The FFEL program ended in 2010.
Federal Poverty Guidelines
Annual income thresholds published by the Department of Health and Human Services (HHS) used by IDR plans to calculate discretionary income and monthly payments.
Forbearance
A temporary reduction or suspension of loan payments. Unlike deferment, interest typically accrues on all loan types during forbearance. Excessive forbearance can significantly increase total loan cost.
Forgiveness
The cancellation of remaining student loan balance after meeting specific criteria, such as making a required number of payments under PSLF or IDR plans.
Grace Period
A period after leaving school during which you are not yet required to make loan payments. For most federal Direct Loans, the grace period is six months.
Graduated Repayment Plan
A federal repayment plan where payments start lower and increase every two years, over a 10-year term. Borrowers pay more total interest than under the Standard Plan.
Income-Based Repayment (IBR)
An IDR plan that caps payments at 10–15% of discretionary income. Loans taken before July 1, 2014 are capped at 15%; newer loans at 10%. Forgiveness occurs after 20–25 years.
Income-Contingent Repayment (ICR)
The oldest federal IDR plan, capping payments at the lesser of 20% of discretionary income or the fixed 12-year standard plan amount. Forgiveness after 25 years. The only IDR plan available for Parent PLUS Loans (after consolidation).
Income-Driven Repayment (IDR)
A category of federal repayment plans that set monthly payments based on income and family size rather than loan balance. Plans include SAVE, IBR, PAYE, and ICR.
Interest Rate
The annual cost of borrowing expressed as a percentage of the loan balance. Federal student loan rates are set by Congress each year and are fixed for the life of the loan.
Loan Servicer
A private company contracted by the U.S. Department of Education to manage the billing and repayment of federal student loans. Borrowers can look up their servicer at studentaid.gov.
Master Promissory Note (MPN)
The legally binding contract you sign when taking out federal student loans. It outlines your promise to repay the loan and the terms and conditions.
Origination Fee
A percentage-based fee deducted from each federal loan disbursement before the funds are sent to your school. Direct Subsidized and Unsubsidized Loans carry a ~1.057% fee; PLUS Loans carry ~4.228%.
Pay As You Earn (PAYE)
An IDR plan that caps payments at 10% of discretionary income for borrowers who took out their first federal loan after October 1, 2007. Forgiveness occurs after 20 years.
Perkins Loan
A now-discontinued federal campus-based loan program that offered low fixed interest rates. Perkins borrowers may be eligible for cancellation through specific employment programs.
Principal
The original amount borrowed (plus any capitalized interest). Your monthly payment reduces the principal balance.
Public Service Loan Forgiveness (PSLF)
A federal program that forgives the remaining balance of Direct Loans after 120 qualifying monthly payments while working full-time for a qualifying government or nonprofit employer.
Refinancing
Replacing one or more existing loans (federal or private) with a new private loan at a potentially lower interest rate. Refinancing federal loans into a private loan permanently removes access to federal protections including IDR, PSLF, and deferment.
Repayment Plan
The structure that determines how your loan payments are calculated and how long you have to repay. Options include Standard, Graduated, Extended, and Income-Driven plans.
SAVE Plan
Saving on a Valuable Education — a federal IDR plan introduced in 2023. It calculates payments based on 5–10% of discretionary income (using 225% of the poverty line), offers interest subsidies, and provides forgiveness after 10–25 years depending on original loan balance.
Servicemembers Civil Relief Act (SCRA)
A federal law that caps the interest rate at 6% on pre-service student loans for active duty military members.
Standard Repayment Plan
The default 10-year federal repayment plan with fixed monthly payments. Borrowers pay the least total interest under this plan but have the highest monthly payments.
Subsidized Loan
A federal loan for which the government pays the accruing interest during in-school, grace, and deferment periods. Available only to undergraduate students with financial need.
Tax Bomb
The large tax bill that can result when a significant student loan balance is forgiven under an IDR plan. The forgiven amount is treated as taxable income in the year of forgiveness (federal tax exemption currently applies through 2025 under ARPA).
Teacher Loan Forgiveness
A federal program that forgives up to $17,500 in Direct or FFEL loan principal for teachers who work five consecutive years in a low-income school or educational service agency.
Total and Permanent Disability (TPD) Discharge
A discharge of federal student loans for borrowers who are totally and permanently disabled, as certified by the VA, SSA, or a licensed physician.
Unsubsidized Loan
A federal loan available to undergraduate and graduate students regardless of financial need. Interest accrues from disbursement; unpaid interest capitalizes when repayment begins.
Variable Interest Rate
An interest rate that can change over time based on a benchmark index. Federal student loans have fixed rates; some private student loans offer variable rates that may start lower but carry more risk.
Weighted Average Interest Rate
A single interest rate calculated by weighting each loan's rate by its outstanding balance. Used to determine the rate on a Direct Consolidation Loan.
46 of 46 terms shown. Information is for educational purposes only. Loan program rules may change — verify current details at studentaid.gov.
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