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Financial Aid Glossary


Select the first letter of the word from the list above to jump to appropriate section of the glossary. The process of awarding student financial aid has grown more complex over the years, and as a result the process has developed its own vocabulary. To help reduce confusion for students and parents, this section presents common definitions for many of the words used by financial aid adminstrators and scholarship providers.

- A -

Academic Year
The period during which school is in session, consisting of at least 30 weeks of instructional time. The school year typically runs from the beginning of September through the end of May at most colleges and universities.

Accrual Date
The date on which interest charges begin to accrue.

Accrued Interest
Interest on a loan that accumulates and is to be paid in installments at a later time usually when the principal becomes due. Accrued interest may be compounded or simple.

Advanced Placement Test (AP)
The Advanced Placement tests are used to earn credit for college subjects while in high school.

American College Test (ACT)
A standardized college entrance examinations used in the United States.

The process of slowly repaying a loan over an extended period of time through monthly installments of principal and interest.

A formal request to have a financial aid administrator review your financial aid eligibility and possibly use Professional Judgment to readjust the figures.

The amount a family has in savings and investments. This includes savings and checking accounts; a business; a farm or other real estate; and stocks, bonds, and trust funds.

Associate Degree
A two-year undergraduate college degree.

Award Year
An academic year in which a student will recieve or request financial aid.

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- B -

Bachelor's Degree
A four-year undergraduate degree offered by colleges and universities.

Balloon Payment
A larger payment used to pay off the outstanding balance of a loan without penalty.

Billing Servicer
A company that manages the billing and collection of loans for lenders.

A person or group that receives a loan

Bursar's Office
A university's office that is responsible for the billing and collection of university charges to students.

Business/Farm Supplement
An additional financial aid form required by some colleges for parents and students who own a business or farm.

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- C -

Some loan programs provide for cancellation of the loan under certain circumstances. The borrower may be eligible for cancellation of all or part of the balance of his/her educational loans.

The process of increasing the size of the loan by adding unpaid interest charges to the principal.
Citizenship/Eligibility For Aid
To be eligible to receive federally funded college aid, a student must be one of the following: 1. a United States citizen, 2. a non-citizen national, 3. a permanent resident with an I-151 or I-551 without conditions, 4. a holder of an I-94 showing one of the following designations: "Refugee," "Asylum Granted," "Indefinite Parole" and/or "Humanitarian Parole," "Cuban-Haitian Entrant, Status Pending," "Conditional Entrant" (valid if issued before April 1, 1980), 5. a participant in a suspension of deportation case pending before Congress Individuals in the U.S. on an F1 or F2 visa only or on a J1 or J2 exchange visa only cannot get federal aid.

Something of value used as security for a loan.

Collection Agency
An outside agency used by the lender or guarantee agency to recover defaulted loans.

College Scholarship Service
The College Board and one of the agencies that processes financial aid information and applications.

Compounded Interest
interest that is paid on both the principal balance of the loan and on any accrued (unpaid) interest, resulting in a new principal balance which will have a new interest assessment.

Consolidation Loan
This loan allows a borrower to combine several educational loans into one new loan. This sometimes results in a lower interest rate. Such loans often reduce the size of the monthly payment by extending the term (up to 30 years depending on the loan amount) of the loan and allowing a single monthly payment, consolidation can make loan repayment easier for some borrowers.

A second creditworthy person who signs a promissory note with a borrower who does not have collateral or a good credit history. The cosigner guarantees that the loan will be repaid if the borrower fails to make payments.

Cost Of Attendance (COA)
The total amount it will cost a student to attend college for a year, including tuition and fees; housing and food for the period of enrollment; books and supplies; and miscellaneous expenses (travel costs, flight fees, lab fees etc.). Other expenses may be added at the discretion of a college's financial aid administrator.

Cooperative Education
A program offered by many instutions in which students alternate periods of enrollment with periods of employment (some provide variuos pay rates). This program may extend the regular baccalaureate degree program to five years. This program combines classroom study with actual work experience.

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- D -

Failure to repay a student loan installment on time (failure to pay several regular installments, i.e. payments overdue by 180 days) according to the terms and conditions agreed to when you signed a promissory note. If you default on a loan, the university, the holder of the loan, and the government can take legal action to recover the money, including garnishing your wages. Defaulting on a government loan will make you ineligible for future federal financial aid. Defaults are recorded on permanent credit records and may result in prosecution and/or loss of future borrowing possibilities.

A borrower is allowed to postpone repaying the loan. Deferments are available while borrowers are in school at least half time, enrolled in a graduate fellowship program or rehabilitation training program, and during periods of unemployment or economic hardship. Other loan programs allow the student to defer the interest payments by capitalizing the interest. Other deferments may be available depending on when and what you borrowed. This benefit is generally characteristic of federal and state guaranteed student loans. Contact your lender for additional details.

The borrower fails to make a payment on time, the borrower is now considered delinquent and late fees may be charged. If several installments are not paid, the loan goes into default.

Dependent Student
A student claimed as a dependent member of household for federal income tax purposes.

Direct Loan
Direct Loan is a new federal program where the school becomes the lending agency and manages the funds directly, with the federal government acting as the guarantee agency. Not all schools currently participate in this program. The William D. Ford Federal Direct Loan Program also known as the Direct Loan Program.

The date on which the loan funds are released to the university for payment. Disbursements for most loans are made in equal multiple installments, and made co-payable to the borrower and the school.

To release the borrower from his/her obligation to repay the loan

Disclosure Statement
This statement provides the borrower with information about the actual cost of the loan, including the interest rate, origination, insurance, and loan fees, and any other kinds of finance charges. Lenders must provide the borrower with a disclosure statement before issuing a loan.

Discretionary Income
Income that is available to a person or family after all financial obligations, including taxes, have been accounted for.

Due Diligence
The federal government requires the lender of the loan to make numerous attempts to contact the borrower by telephone and mail, if the borrower failed to make payments according to the terms of the promissory note. This is to encourage the borrower to repay the loan and make arrangements to resolve the delinquency.

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Eligible Noncitizen
A financial aid applicant who is not a U.S. citizen but is eligible to receive federal Title IV aid because he/she is a permanent resident, noncitizen national, or a resident of the Trust Territory of the Pacific Islands or Micronesia.

Estimated Family Contribution (EFC)
The amount of money the financial aid office expects the family to be able to contribute to the student's education. The EFC is calculated according to a formula established by Congress. The difference between the COA and the EFC is the student's financial need.

Electronic Funds Transfer (EFT)
This process is used by lenders to wire funds directly to participating schools without requiring an intermediate check for the student to endorse.

Enrollment Status
The number of credits a student is taking per semester or quarter. The status is diveded into two caterogies: full-time (usually 12 credits or more) or part-time (usually 6 credits) status. A student must be enrolled at least half-time or full-time to qualify for financial aid.

Entrance Interview
A required counseling session at which a financial aid officer, must inform the student borrowers about their rights and responsibilities.

Exit Interview
Students with educational loans are required to meet with a financial aid officer before they graduate. During this exit interview, an adminstrator reviews the repayment terms of the loan and the repayment schedule with the student.
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Federal Direct Loan
The federal government is the lender for a group of federal loan programs. Included in these programs are government-subsidized loans for students and unsubsidized loans for both students and parents.

Federal Education Loan Programs
A bank, savings and loan, credit union, or other private organization is the lender for a group of federal loan programs. Included in these programs are government-subsidized loans for students and unsubsidized loans for both students and parents.

Federal Methodology
A standard method of calculating how much a family should be expected to contribute toward college costs. All the federal funds are awarded based on this need analysis formula.

Federal Pell Grant
Federal grant awarded to undergraduate students based on need.

Federal Perkins Loan
A 5% loan funded by the government which is awarded by colleges to both undergraduate and graduate students.

Federal Plus Loan
A nonsubsidized loan program for parents of undergraduate students under the Federal Education Loan Program umbrella.

Federal Stafford Loan
A Federal Education Loan Program for students. Stafford Loans can be either government-subsidized, in which case the government pays any interest while the borrower is attending college, or unsubsidized, in which case interest begins to accrue when the loan is made.

Federal State Student Incentive Grant
Awards made as part of a state grant program utilizing both federal funds and state funds.

Federal Supplemental Educational Opportunity Grant (FSEOG)
A federal grant awarded by colleges to the most needy undergraduate students as determined by the federal need analysis formula.

Federal Work-Study Program (FWSP)
A federal, need-based financial aid program through which eligible students can earn a portion of their college expenses. Work-study awards are made by colleges, but a portion of the funding comes from the federal government. Essentially FWSP pays a portion of the student's salary, making it cheaper for departments and businesses to hire the student.

Federal Family Education Loan Program (FFELP)
This program includes the Federal Stafford Loans and the PLUS loans.

A form of financial aid given to graduate students to help support their education. Some fellowships include a tuition waiver or a payment to the university in lieu of tuition. Most fellowships include a stipend to cover reasonable living expenses.

Financial Aid Administrator (FAA)
A FAA is an university employee who is involved in the financial aid process.

Financial Aid Award Letter
Written notification to an applicant from a college that details how much and which types of financial aid are being offered if the applicant enrolls.

Financial Aid Package
The total amount of financial aid a student receives. This is a complete collection of grants, scholarships, loans, and work-study program offered to a student to financially assist them to attend the university for one school year.

Financial Aid Profile
A financial aid application developed by the College Scholarship Service that many colleges use to determine aid given from their own institutional funds.

Financial Aid Transcript (FAT)
A record of any financial aid a student has received at a given institution. To be eligible for federal financial aid programs, students must submit this transcript from all previously attended postsecondary institutions, regardless of whether aid was received.

Financial Need
The difference between a college's cost of attendance and the Expected Family Contribution) as calculated by the need analysis methodology.

Free Application For Federal Student Aid (FAFSA)
The official application students must use to apply for federal aid.

Financial Aid Office (FAO)
The college's office that handles all matters affecting financial aid.

Fixed Interest
A rate of interest that is set at the time a loan is negotiated and that remains constant over the life of the loan.

An authorized period of time during which the lender agrees to temporarily postpone a borrower's principal repayment obligation. Interest continues to accrue and usually must be paid during the forbearance period. Forbearance may be granted at the lender's discretion .
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- G -
The process of withholding a portion of a borrower's wages to repay his/her loan, usually without their consent.

Gift Aid
Grant and scholarship funds given as financial aid that does not have to be repaid.

Grace Period
A short time period after graduation or no longer in school during which the borrower is not required to begin repayment. The typical grace period is six or nine months. Some loan programs have no grace period.

Grade Point Average (GPA)
An average of a student's grades. Some schools uses the 4.0 scale (4.0 = A, 3.0 = B, 2.0 = C, 1.0 = D) and others uses the 5.0 scale.

A type of financial aid award based on need or merit that is not repaid by the student.

Gross Income
A family's or individual's total income before deductions.

Guarantee Agency
A guarantee agency agrees to pay back a loan due to a borrower's default, death, disability, or bankruptcy. The federal government sets loan limits and interest rate, but each state is free to set its own additional limits within the federal guidelines. Each state has a different guarantee agency that administers the federal Stafford and Plus loans for students in that state. A guarantee fee is a small percentage of the loan that is paid to the guarantee agency as a form of insurance against default. For the name, address, and telephone number of your state's guarantee agency, call the Federal Student Aid Information Center at 1-800-433-3243 (1-800-4-FED-AID).

Guarantee Fee
An insurance fee, deducted from the borrower's loan proceeds prior to disbursement, that the guarantee agency charges a lender. The fee for a Federal Stafford or PLUS Loan is1%. By law the fee cannot exceed 3% of the loan amount.
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- I -
Independent Student
A student who reports only his or her own income (and that of a spouse, if relevant) when applying for federal financial aid. Students who will be 24 or older by December 31, 1998, will automatically be considered "independent" for 1998-1999. Students who are under 24 will be considered independent if they are: 1. married and not claimed as a dependent on their parents' 1998 federal income tax return; 2. the supporter of a legal dependent other than a spouse; 3. a veteran of the U.S. Armed Forces; 4. an orphan or ward of the court; 4. classified as independent by a college's financial aid; 5. administrator because of other unusual circumstances; 6. a graduate or professional student

Indirect Costs
All the non-tuition-related costs associated with attending college, including room, board, transportation, medical, and personal expenses.

In-State Student
The legal resident of state, and the student is eligible for reduced in-state student tuition at a public college or universitie in the state. Certain requirments must be met.

Institutional Methodology
A standard method of determining a student's or family's ability to pay for college used by individual colleges in awarding their own institutional funds for financial aid. However, colleges must use the Federal Methodology in awarding any federal funds.

Insurance Fee
A fee charged to guarantee student loans against loss through default. The amount charged is usually deducted from the disbursement of the principal.

A fee charged to the borrower for the use of borrowed money from the lender. Interest is calculated as a percentage of the principal loan amount. The percentage rate may be fixed for the life of the loan, or it may be variable, depending on the terms of the loan. As of October 1, 1992, all federal education loans made to new borrowers have variable interest rates.

Interest Subsidy
Interest payments made by the federal government to the lender of a Subsidized Federal Stafford or Direct Loan while the borrower is enrolled at least half-time or is in a grace period.

Internal Revenue Service (IRS)
The federal agency responsible for collecting income taxes. Student aid applications are often verified by their family's IRS forms.

A part-time job during the academic year or the summer months. A student receives supervised work experience in a his/her career field. Some internships provide the student with a mentor and stipend.
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- L -
A financial institution (bank, savings and loan, or credit union) that provides the money for students and parents to borrow educational loans. The money borrowed usually have conditions that the money be returned with an interest charge. Some schools are also lenders.

Loan Disclosure Statement
A document that shows the amount of a loan; where, when, and what repayments must be made; the interest rate; and the cost of borrowing that loan.
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- M -
Merit-Based Aid
Any form of financial aid awarded on the basis of personal achievement or individual characteristics without reference to financial need.
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- N -
The difference between the COA and the EFC is the student's financial need. The remaining amount is considered student need. The financial aid package is often based on the amount of financial need. The process of determining a student's need is known as the need analysis.

Needs Analysis
A process of reviewing a student's aid application to determine the amount of financial aid a student is eligible for. Completing a needs analysis form is the required first step in applying for most types of financial aid.

New Borrower
A borrower who has no outstanding (unpaid) loan balances on the date he/she signs the promissory note for a specific educational loan. New borrowers may be subject to different regulations than borrowers who have existing loan balances.
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- O -

Origination Fee
A processing fee charged to a borrower which is deducted from the loan to pay part of the loan's adminstrative costs. This fee is usually subtracted from the amount of a loan.

Outside Scholarship
An award that recieved from sources (private scholarship, companies, foundations, etc.) other than the school and the federal or state government.

Out-of-State Student
A student has not met the legal residency requirements for the state. An out-of -state student is often charged a higher tuition fee at a public college or university in the state.

A student's family contribution plus any financial aid awarded exceeds the cost of attendance at a given college. Overawards may result when a student's enrollment status changes or when additional resources (such as a private scholarship) become available to a student.

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- P -
Pell Grant
The Pell grant is a federal grant that provides funds of up to $2,500 based on the student's financial need.

Perkins Loan
Formerly the National Direct Student Loan Program.
The Perkins Loan allows students to borrow up to $3,000/year (5 year max) for undergraduate school and $5,000/year for graduate school (6 year max).

Prime Rate

The fluctuating interest rate that banks charge to their best business customers.

The amount borrowed. Interest is charged on this amount as a percentage of the principal, and guaranty and origination fees will be deducted prior to disbursement.

Paying off all or part of a loan before it is due.

Professional Judgment
The legal authority of financial aid administrators to change a calculated Expected Family Contribution or any of the elements used in the calculation based on additional information or individual circumstances that would lead to a more accurate assessment of a family's financial condition.

The secondary application for financial aid processed through the College Scholarship Service (CSS). This must be completed by all students who wish to receive aid other than Federal Stafford Loans.

Promisory Note
This is binding legal document signed by the student borrower before loan funds are disbursed by the lender. The promisory note states the terms and conditions of the loan, including repayment schedule, interest rate, deferment policy, and cancellations. The student should keep this document until the loan has been repaid.

Parent Loans for Undergraduate Students (PLUS)

A federal loans available to parents of undergraduate students to help finance the student's education. Parents may borrow up to the full cost of their children's education, less the amount of any other financial aid received.
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- R -
Repayment Schedule
A plan that discloses the borrower's monthly payment, interest rate, total repayment obligation, due dates and length of time for repaying the loan.

Repayment Term
A number of installments or years the borrower is required to make payments on his/her loans.

Research Assistantship (RA)

A form of financial aid given to graduate students to help support their education. Research assistantships usually provide the graduate student with a waiver of all or part of tuition, plus a small stipend for living expenses. As the name implies, an RA is required to perform research duties. Sometimes these duties are strongly tied to the student's eventual thesis topic.

Renewable Scholarships
A scholarship that is awarded for more than one year. Usually the student must maintain certain academic standards or grade point average to be eligible for subsequent years of the award. Renewable scholarships may require the student to reapply for the scholarship each year; others may require a report on the student's progress in his/her career field.
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- S -
Satisfactory Academic Progress (SAP)
The level of academic achievement expected of a student in order to continue to receive financial aid. If a student fails to maintain an academic standing consistent with the school's SAP policy, they are unlikely to meet the school's graduation requirements.

Student Aid Report (SAR)
A SAR is the sent to the student after filing a FAFSA. The SAR summarizes the information included in the FAFSA and must be provided to your school's FAO. The SAR will also indicate the amount of Pell Grant eligibility, if any.

A form of financial aid given to undergraduate students to help pay for their education. Most scholarships are restricted to paying all or part of tuition expenses, though some scholarships also cover room and board.

Secondary Market
Loans are often bought and sold on the secondary market. Institutions that buy loans from lenders, usually at a discount. If a loan is sold, the secondary market is responsible for managing and servicing it. The terms of your loan do not change when it is sold to another lender.

Self-Help Aid
Funds from jobs and from loan programs, such as the Federal Perkins Loan, Federal Stafford and Direct Loans, and Federal Work-Study Program.

Self-Help Expectation
The principle that students have an obligation to help pay for a portion of their own education. The expected amount of self-help is usually included in the analysis of a student's resources.

Simple Interest
Interest computed only on the original amount of a loan.

Simplified Needs Test
A formula used in the Federal Methodology for families whose Adjusted Gross Income (AGI) is less than $50,000 and who file either the 1040A or 1040EZ IRS forms. In this formula, a family's assets are not included.

Stafford Loans
Stafford Loans are federal loans that come in two forms, subsidized and unsubsidized. Subsidized loans are based on need; unsubsidized loans aren't. The Subsidized Stafford Loan was formerly known as the Guaranteed Student Loan (GSL). Undergraduates may borrow up to $23,000 ($2,625 during the freshman year, $3,500 during the sophomore year, and $5,500 during each subsequent year) and graduate students up to $65,500 including any undergraduate Stafford loans ($8,500 per year).

Statement of Educational Purpose
A separate form, or a statement on the FAFSA, that all students must sign in order to receive federal student aid. By signing you agree that: 1. You are to use your student aid only for education-related expenses, 2. You have complied with Selective Service requirements by registering with the Selective Service or indicating the reason why you are not required to register.

Supplemental Education Opportunity Grant (SEOG)
The SEOG is a federal grant program for undergraduate students and first baccalaureate degree only with exceptional need. SEOG grants are awarded by the school's financial aid office, and provide up to $4,000 per year. Eligibility is based on the federal methodology using the information provided on the FAFSA. Priority is given to students who are eligible for Pell Grants, meet filing deadlines and who demonstrate the greatest historical need.

Subsidized Loan
A need-based loan on which the interest is paid by the federal government during the in-school, grace, and deferment periods.
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- T -
Teaching Assistantship (TA)
A form of financial aid given to graduate students to help support their education. Teaching assistantships usually provide the graduate student with a waiver of all or part of tuition, plus a small stipend for living expenses. As the name implies, a TA is required to perform teaching duties.

The term of a loan is the number of years (or months) during which the loan is to be repaid.
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- U -
Unmet Need
The student's financial aid package and the family contribution does not cover the costs of attending a particular college, the difference is called the Unmet Need.

Unsubsidized Loan
An unsubsidized loan is a loan for which the government does not pay the interest. The borrower is responsible for the interest on an unsubsidized loan from the date the loan is disbursed.
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- V -
Variable Interest
The rate of interest that changes during the life of a loan on a regular basis and is generally tied to an index. Some student and parent loan programs have variable interest rates that change annually based on the one-year Treasury Bill rate.

Verification is a review process in which the FAO determines the accuracy of the information provided on the student's financial aid application. During verification additional information from the student, a spouse, and the parents is used to confirm previously submitted documentation for the amounts listed (or not listed) on the financial aid application.
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