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Finance Glossary for Students


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To accumulate interest on a loan.


Alien Registration Number

A number assigned to certain noncitizens. It can be found on a green card and is often used in lieu of a social security number.


Annual Percentage Rate (APR)

Percentage of a loan that is added as interest annually. Loan agencies use APR to calculate and clarify how much total money a borrower will need to repay to pay off his or her loan.


Award Letter

A letter sent from your school detailing your financial aid package.




The person who takes out and is responsible for repaying a loan.




Also known as loan discharge, this occurs when a lender cancels all or part of a student loan. Programs such as the Teacher Loan Forgiveness Program and the Public Service Loan Forgiveness Program qualify borrowers for loan cancellation. Death of a borrower, school closings, or bankruptcy may also result in loan cancellation.


Capitalized Interest (Capitalization)

Accrued and unpaid interest and fees that are added to the balance of a loan.



A second signer to a written agreement who agrees to take on the responsibilities of the contract if the original signer fails to do so. A cosigner must be financially secure, so as to guarantee that they will receive proper repayment on loans no matter what. Those with bad credit or a history of default are likely to need a cosigner to participate in financial agreements.


Cost of Attendance (COA)

The estimated cost for a student to complete one full year of school. Every college must calculate and publicly declare its COA each year. Factors that go into calculating a COA include a full year’s tuition, books and supplies, room and board, food plans, and a miscellaneous fee average. Schools typically post the COA in the financial section of their website, often accompanied by a net price calculator.


Credit Score

Also known as a FICO score, this is a three-digit number that summarizes your creditworthiness. Ranging from 300 (worst) to 850 (best), your credit score tells lenders how likely you are to pay back loans. Some, but not all, student loans require having a positive credit score. Paying your student loans back on time can potentially boost your credit score. Find out more about getting your free credit report here.



Dear Colleague Letter

Memos sent from the U.S. Department of Education to schools, loan agencies, and other financial institutions. These letters are sent whenever changes are made to federal financial aid programs, or when the Department of Education wishes to clarify, or provide guidance on any of its aid programs.



Default occurs when someone fails to pay back a loan on time. Defaults carry different penalties based on the defaulter’s loan servicer and the details of the default itself. Defaulting on a loan can make it difficult to take out future loans, so it’s important to take all necessary steps to avoiding default.



Deferment allows one to delay starting the loan repayment process. To qualify for deferment, one must contact either the school’s financial aid office, the loan servicer, or both, depending on the type of loan.



This is what occurs when you fail to make a payment on a loan. Delinquency can result in late fees, default, lower credit scores, and possible legal issues.


Dependent Student

If you are younger than 24, unmarried, and have neither been a marine nor homeless, you are likely a dependent student. Dependent students must include their parents’ information on financial forms such as the FAFSA.



Students receive their federal student loans in one, or generally more than one, disbursement. This is a portion of a loan that the school pays either directly to the borrower or by applying it to the student’s tuition payments.


Discretionary Income

The money left over after taxes and paying for basic expenses such as food, shelter, and clothing. Discretionary income is also known as “disposable income” or “spending money.”



Early Decision/Early Action

The main difference is that early decision plans are binding and early action plans are not. If you choose early action, you have until May 1—the normal decision date—to reply to the school.


Emancipated Minor

A person under the age of 18 who has, via a court ruling, separated himself from his or her parent’s rule, and is now considered an adult by law.


Entrance/Exit Counseling

Any undergraduate or graduate student wanting to obtain a Direct Loan must first attend a mandatory counseling session with a financial supervisor. Similarly, the student must agree to, and then attend an exit counseling session once he or she graduates, drops below half-time enrollment, or quits school for any reason. These sessions help to inform students of the financial responsibilities that accompany student loans, as well as teach them financial best practices.


Expected Family Contribution (EFC)

A number between 0 and 99,999 used to determine a student’s ability to pay for college based on his or her family’s finances. The lower the score, the more federal financial aid the student is eligible to receive.  An EFC score of zero is given to any applicant who comes from a family that makes less than $23,000 a year and is already on government assistance. Student EFC’s are primarily based on family income, but can also be modified based on the number of family assets, or lowered in the case of family matters such as divorce, death, or parental unemployment.




The “Free Application for Federal Student Aid” is a form that students fill out each year to qualify for grants, loans, work-study, and some scholarships. Deadlines vary depending on your school and state, but it is generally recommended to fill out the form as close to Jan. 1 as possible. For more on the application and how to fill it out, visit our comprehensive FAFSA Community here.


Federal Family Education Loan Program (FFELP)

A federal student loan program established under the Higher Education Act of 1965 and terminated following the passage of the Health Care and Education Reconciliation Act of 2010. This program, backed by commercial lender Sallie Mae, encompassed both the Stafford and PLUS Loans—both of which still exist, but are now backed by the government under the William Dr. Ford Federal Direct Loan Program.


Federal Loan

Federal loans are the type of loans students receive after filling out the FAFSA. Federal loans carry interest rates between 5 and 8 percent, and they are often subsidized, meaning that the loans do not begin to accumulate interest until the student leaves school and any grace period ends.


Federal Student Aid PIN

This number is used to apply for federal financial aid and will give you access to all of your online financial aid records. It is used in place of a signature when completing the FAFSA. Apply for a PIN here.


Financial Aid Package

The federal and nonfederal aid offered to a student by a particular college to help pay for the cost of a higher education.


Fixed Interest Rate Loan

A loan with a set interest rate, meaning that the rate remains the same for the life of the loan.



Forbearance is a way for graduates to reduce or postpone paying back their federal student loans. To do this, contact your loan servicer and ensure that leniency has been granted before missing any due payments. Forbearance usually lasts for six months or less and most loans will still accrue interest during this time.



Gift Aid

Any form of federal financial aid that does not require repayment. Examples of gift aid include federal grants and need-based or performance-based scholarships.


Grace Period

Any extra time granted after a loan payment is due, but before any penalties are enacted. This generally occurs after a student graduates, leaves school, or drops below half-time enrollment. Borrowers do not make payments during grace periods; however, be sure to check if interest will still accrue during this time.



Essentially, free money. A grant is a form of financial aid for students pursuing higher education that does not need to be paid back.


Gross Income

The total earned before taxes and fees are deducted; this is generally the same as one’s salary, or combined salaries if you hold more than one job.



Income Based Repayment Plan (IBR)

A federal student loan repayment plan that offers lower monthly payments for those whose income is low relative to their student debt load. This type of plan is meant to make monthly payments more manageable for borrowers.


Income-Contingent Repayment Plan (ICR)

A federal student loan repayment plan based on your adjusted gross income, family size, and total amount of Direct Loans. If you do not qualify for the Income-Based Repayment Plan or Pay As Your Earn Plan, this may be a good alternative to loan repayment.


Income Tax Refund Offsets

An automatic collection of one’s tax refund by the government as a way of forcibly collecting on overdue loan payments. If one fails to pay his or her student loan payments and they default, the government will then “offset” the defaulter’s overdue payments (as well as any associated fees) by taking some or all of a person’s tax refund.


Independent Student

A status used for financial purposes that is based off a number of specific criteria. If one matches any of the criteria used to determine students as independent, then he or she may declare as one. If not, then the applicant is a dependent student. If you are older than 24, married, have a child, or have ever been a marine or homeless, you may be considered an independent student. They are not required to add their parents’ financial information on the FAFSA.


Individual Taxpayer Identification Number (ITIN)

A nine-digit number issued by the IRS for the purposes of federal tax reporting. ITINs are issued to those who have federal tax reporting or filing requirements but do not qualify for a social security number.



Money paid for money lent; or the cost of borrowing. To fully pay back a loan, one must repay the original amount he or she borrowed, as well as pay for any interest collected via the loan’s interest rate. Interest can either be calculated as compound interest or fixed interest; compound interest will accumulate fees faster.


Interest Rate

The percentage charged to borrow money.



Job Placement Rate

The percentage of students from a given college who obtain employment upon graduation. This is one of many factors that can go into college rankings.



Loan Consolidation

This is a process that involves combining multiple loans or debts into one singular loan. Loan consolidation is beneficial for those who have trouble keeping track of due dates, as you can combine multiple monthly payments into a single bill. There are pros and cons to loan consolidation, so be sure to weigh all options before moving forward with the process.


Loan Servicer

A loan servicer is any group responsible for receiving loan repayments on behalf of a bank or other financial institution that loans money. A loan servicer’s job is to get back money, but also to work with those who owe money to make paying back a loan as easy as possible. Loan servicers have the ability to help those in financial difficulty via services such as loan consolidation or by granting forbearance.

However, if a borrower is unable or unwilling to fulfill their financial obligations, loan servicers can enact financial fees, use a collection agency, or cause the loan to default.



Master Promissory Note

A legal contract signed by borrowers saying they promise to repay their student loans and any accrued interest. These notes include a Borrower’s Rights and Responsibilities Statement that explains the terms and conditions of the loan or loans. Students should keep this statement and refer to it when they begin repaying federal student loans.



To enroll at a college or university.



Net Price Calculator

A “net price” refers to the amount one pays for college minus all forms of financial aid. If a student has no financial aid, then his or her net price will be the same as the school’s tuition. By federal mandate, every U.S. college and university must provide students with an online calculator to determine the net price of one year of full-time education at a particular school. These calculators are usually found within the “Financial-Aid” section of the school’s official website, but they should only be considered an estimate or guide for comparing schools as prices could still vary.



Office of the Bursar

An office at every college and university dedicated to clarifying all financial exchanges made between the school and its students. This is the place to go for more information on financial aid, tuition billing, refunds, scholarships, or anything else related to money. The Bursar Office is also responsible for informing students and their parents of all of the school’s new financial policies or changes.



Pay As You Earn Plan

A student loan repayment plan with monthly repayments capped at 10 percent of one’s discretionary income. This plan requires showing proof of some sort of financial hardship.


Pell Grant

The Pell Grant is a need-based grant offered primarily to undergraduate students and is one of the most beneficial forms of financial aid offered through the FAFSA. Pell Grant recipients may receive up to $5,645 dollars in free financial aid each year that they apply. Over 5.4 million students receive Pell Grants each year.


Perkins Loan

A federal, need-based student loan best recognized for its relatively low fixed interest rate (5%), as well as its generous grace period before repayment begins. The Perkins Loan offers a maximum of $5,500 a year for undergraduate students and $8,000 a year for graduate students, making it another of the most well-known and beneficial forms of federal financial aid.



A type of federal student loan available for graduate students and parents of undergraduate students (undergraduate students themselves cannot qualify for this type of loan). The PLUS Loan generally carries a higher interest rate than other federal loans, however students can use PLUS Loans to fund the entirety of their education, making this an apt choice for those looking to simplify the student-loan process.



Paying back a loan in part or whole before the borrower is contractually required to do so. Be aware: prepayments may actually if the lender requires you to hold the loan for a certain amount of time before repayment. Check with your loan servicer before paying early to avoid any fees.



An expression of the amount of money owed to a loan servicer. Principal can either be presented as the original amount borrowed or, more commonly, the amount of the original loan still left unpaid. Often, accumulated interest on a loan is not included in the principal.


Private Loan

A loan taken out from a private, for-profit loan company. Whereas federal loans are designed to support academic financing, private loans are typically intended for any. Private loans may have fewer borrower protections and/or higher interest rates than federal loans, and they are unsubsidized, meaning that interest will begin to accumulate immediately and continue to do so for the entirety of one’s education.



Room and Board

The amount a student pays for housing and food.



Section 529 Plan

Also known as prepaid tuition, a 529 plan is an account offered by an individual state or private company that helps people save for college by offering either tax advantages or the ability to lock-in present day tuition credits. These plans provide a more effective way of saving for college compared to putting money in your regular savings or brokerage account.


Student Aid Report (SAR)

A form students receive after their FAFSA application has been submitted. The report provides students with their Expected Family Contribution, or EFC.



A type of loan based on financial need. While a student is still enrolled in school, the federal government pays the interest accrued on subsidized loans.



Tax Return

A form filed with the IRS or a state or local tax collection agency to determine one’s income tax and any other additional taxes.



A grant offered to students who agree to teach in low-income areas upon graduation. The Teacher Education Assistance for College and Higher Education (TEACH) grant requires that recipients complete certain classes and then begin working as a teacher in specific areas after graduation. The TEACH grant offers recipients up to $4,000 a year. However, if the recipient fails to comply with the grant’s restrictions, the money will be converted into a loan.




A type of loan that is not based on financial need. The student is responsible for paying all interest on an unsubsidized loan.



Variable Interest Rate

A loan without a set interest rate, meaning that the rate will not necessarily remain the same throughout the life of the loan.



William Dr. Ford Federal Direct Loan Program

A U.S. Department of Education loan program. This program replaced the Federal Family Education Loan Program and includes Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans.



Income tax withheld by an employer; this is a pay-as-you-go tax.



The Federal Work Study Program, also known as “FWS” or “work-study” is a form of federal financial-aid that affords students part-time job opportunities to help pay their tuition. Work-study is a need-based federal financial-aid program that guarantees selected students reliable, local jobs that pay at least minimum wage. Work-study participants serve on- or off-campus, depending on the job.



A necessary college form that provides one’s social-security number and tax identification number to his or her school, mostly for tax purposes. This form serves as a connecting piece between the government and the school, allowing the school to make financial claims on the student’s behalf. Students may become eligible for certain tax breaks due to their status as students; this form allows the government to work with the school to grant those breaks automatically.