For most people the worst part of applying for student loans for college is trying to make sense of the paperwork, with its complicated legal language and confusing terms. To help you figure out student loan information, here are plain-language definitions and explanations of financial terms you may encounter.
Consolidation: If you have more than one federal student loan, sometimes you can combine them, meaning that you would have one payment instead of several payments per month. The good news is that there is generally no minimum or maximum loan amount that you can consolidate; the bad news is that not all student loans are eligible for consolidation. Your college’s financial aid office or the lender who provided your loans will be able to tell you if your loans can be consolidated.
Deferment: Having a deferment means that you can postpone paying back your loan or loans. It may be possible for you to get a deferment if you are:
- Enrolled in college at least half time (typically no fewer than six credits)
- Enrolled in graduate school
- Getting job training to help you change careers
- Unemployed or facing a severe economic hardship
- Enlisted in the military
This is an extremely useful option particularly for subsidized (See Subsidized Loan) Stafford loans, because you won’t be charged interest during the deferment period. Deferment options vary depending on the type of loan and date you took out the loan.
Forbearance: Forbearance means that your loan holder agrees to let you temporarily stop making loan payments, gives you more time to make payments, or lets you make smaller payments. Unlike deferment, the interest on your loan continues during forbearance. If you're unable to make payments on your loan for reasons such as unexpected personal problems like divorce or illness and you don't qualify for a deferment, you may request forbearance of loan payments.
Forgiveness: You can reduce or eliminate your federal student loans (such as Perkins or Stafford loans) with forgiveness programs that help you pay off your loans in exchange for one or more years of public or community service. To qualify, you must perform volunteer work; serve in the military; teach, practice medicine, or practice law or law enforcement in certain types of communities; or meet other criteria outlined by the forgiveness program. Some programs, such as AmeriCorps VISTA, pay a specific dollar amount toward your loan; other programs pay a certain percent of your loan for each year of service up to a certain limit. (See “
Community Service Ideas That Help Students Pay College Expenses.”)
Default: Defaulting on a loan means that you stop making payments as you agreed to when you took the loan. Federal student loans consider you to be in default if you don’t make payments for nine months. Private loans from lenders other than the government may be considered in default sooner than nine months; check with your lender so you know how they define terms. When your loan is in default, the entire amount of the loan becomes due.
Delinquent: When you miss or are late with your loan payment, you are considered delinquent on your loan. Your lender may charge a late fee or set some other penalty when you are delinquent with your loan. If you are delinquent for too many months, you may be considered in default.
Exit Counseling/Exit Interview: If you have a federal student loan, such as a Perkins, Stafford, or GradPLUS loan, you are required to complete exit counseling when you graduate, leave school, or drop to less than half-time status (fewer than six credit hours). The exit counseling will explain the terms of your loan, repayment requirements, and penalties for delinquency and default. Your school’s financial aid office can conduct the exit interview, or you can do it online at the U.S. Department of Education’s student loan website
(https://www.dl.ed.gov/borrower/BorrowerLogin.jsp) Grace period: A grace period is the time between when you leave school (or become less than a half-time student—usually six credits) and when you have to begin making payments on your student loan. For federal loans, the grace period is usually six or nine months. Some private loans may require you to begin making loan payments as soon as you leave school. Be sure and check with your lender to know for sure when you are supposed to begin repaying your loan.
IBR (Income-Based Repayment): As of July 1, 2009, federal student loans include a repayment option called Income-Based Repayment (IBR). The program helps borrowers keep their loan payments affordable by setting payment limits based on income and family size. For most eligible borrowers, IBR loan payments will be less than ten percent of their income—and even less for borrowers with low earnings. IBR will also forgive any remaining debt after twenty-five years of qualifying payments.
Subsidized Loan: The federal government pays the interest on subsidized loans while you are in college, during the grace period, and during any authorized deferment periods. Having the government pay the interest on the loan during these times keeps the loan amount steady at the amount you borrowed until it is time to repay the loan. Stafford loans in the FFEL (Federal Family Education Loan) and William D. Ford Federal Direct Loan programs can be subsidized up to a certain amount based on your financial need.
Unsubsidized Loan: This is the part of a federal Stafford (FFEL or Direct Loan) that is not based on financial need. You are responsible for paying the interest on this loan during in-school, grace, and deferment periods, as well as during normal repayment. You can either make interest payments on the loan while you are in school, or you can have the interest added on to the loan and begin repaying the total once you are out of school.
Additional terms related to student loans:http://www.studentloanborrowerassistance.org/glossary/
Recommended Web sites
The National Consumer Law Center’s “Student Loan Borrower Assistance Project” at
http://www.studentloanborrowerassistance.org/ provides information and answers to frequently asked questions about student loans and loan repayment.
Federal Student Aid Ombudsman of the U.S. Department of Education:
http://www.ombudsman.ed.gov/ helps resolve disputes and solve problems with federal student loans.
Elizabeth Johnson is a freelance writer in Lansing, Michigan, who is navigating the world of student loans for college with her teenage son.