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Financial Glossary

Learn financial terminology

A  B  C  D  E  F  G  H  I  J  K  L  M  N  O  P  Q  R  S  T  U  V  W  X  Y  Z 

-A-

Accrued Interest -The interest that accumulates on the unpaid portion of the loan.
Alternative Loan - A private supplemental loan for students available from a national network of lenders.
Amortization – The process of repaying debt in regular payments over a period of time through installments consisting of principal and interest.
Amount Due -The amount you own on billing statements, usually less than the total balance. Paying the amount due will keep your account current.
Annual Fee - A yearly fee a creditor may charge for issuing you credit.
Annual Percentage Rate (APR) - The percentage rate that represents the actual yearly cost of funds over the term of a loan. This includes interest charges and any fees or additional costs associated with the transaction.
Award Letter - A document from your college/university financial aid office detailing the financial aid awarded to the student.

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-B-

Balance - The remaining portion of an unpaid debt. A balance may be comprised of both principal and interest.
Borrower - The person who obtains a loan.
Budget - A plan that outlines your income and spending during a particular time period.
Bursar - The person/office at a school that is in charge of collecting education costs.

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-C-

Certificate of Deposit (also known as a CD) - A type of investment that typically has a higher rate of return than a savings account. Money in a certificate of deposit account has a maturity date. Funds must remain in the account for the duration of the certificate’s maturity or the account holder may be charged a penalty.
Checking Account - A type of account where the holder may write checks or withdraw funds against the money which has been deposited into the account. Holders may be charged fees for checking accounts while other checking accounts will bear interest to the account holder.
Collateral - Assets (property) that are pledged by a borrower on a loan to insure it against default. Should the loan enter default, the assets pledged may be seized by the lender.
Collection Agency - A company hired by a lender or bank to collect and recover funds from a defaulted balance. A collection agency may also add collection fees to the balance that the borrower will need to repay.
Consolidation - The act of refinancing existing student loans into a single loan.
Compound Interest - Interest computed on the accumulated unpaid interest as well as on the original principal.
Cosigner (a.k.a Coborrower) - A secondary person who signs the promissory note of a loan and assumes responsibility of paying for a loan should the borrower fail to pay.
Cost of Attendance (COA) - The total sum of attending a school. This cost includes tuition, fees, room & board, books and supplies, food, incidentals, travel expenses and personal expenses. The Cost of Attendance is different at each school.
Credit Bureau - An agency that collects and distributes credit history and information such as number of accounts, balances, employment stability and payment history for individuals.
Credit History - A person’s history of borrowing and repaying debts.
Credit Limit - The amount of credit you are authorized by an issuer. For example, with a credit card, you many have a credit limit of $1,000. If you attempt to charge greater than $1,000, your credit card may be rejected, you may be charged a fee, and/or have your credit privileges cancelled by your issuer.
Credit Score -A numerical evaluation of an individual’s credit history. Many lenders use the credit score to determine how likely a borrower is to default on a loan.
CSS PROFILE -A supplemental financial aid form required by some schools in order to be eligible for institutional financial aid.

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-D-

Daily Periodic Rate (DPR) - The rate of interest that accrues on an outstanding balance on a single day. The rate is calculated by dividing your annual interest rate by 365.
Debt-to-Income Ratio - The proportion of monthly payments on debts to monthly income.
Default - A failure to meet the terms of a loan as stated in the promissory note. Typically, a borrower who fails to make several payments in a row on a loan is considered in default. Defaulted loans are often assigned to collection agencies.
Deferment - A temporary postponement of repaying a loan as agreed by the lender, typically granted to students while they are in an in school status.
Delinquent - A failure to meet the terms of a loan as stated in the promissory note and/or to make timely payments on a loan. Delinquency may result in late fees and will have a negative impact on your credit score. Continued delinquency can result in default.
Direct Lending - See Federal Direct Student Loan Program (FDSLP).
Disbursement - When a lender releases loan funds to a school and/or borrower.
Disclosure Statement - An official document outlining the actual cost and terms of a loan along with the stated interest rate and any insurance, origination or other loan fees.
Discretionary Income - The amount of income a person has available to spend after they have factored in costs for essentials such as food, transportation, and shelter.
Down Payment - An initial cash payment towards a purchase such as a home or car that reduces the amount a person has to borrow.

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-E-

Electronic Funds Transfer (EFT) - The process of electronically transferring funds from one account to another. Many lenders have an EFT program in which payments can be automatically withdrawn from a borrower’s bank account on a monthly basis as payment.
Entrance Interview - A session in which an administrator, counselor or financial aid officer informs student borrowers about rights and responsibilities of having loans.
Equal Credit Opportunity Act - A law established by the federal government that prohibits lenders from discriminating on the basis of religion, race, color, national origin, sex, age, marital status, or participation in any public assistance program.
Equity - Equity is the ownership in any asset after all debts associated with that asset are paid off.
Exit Interview - A session in which an administrator, counselor or financial aid officer informs student borrowers of their student loan obligations and responsibilities. Rights and terms of loans are reviewed during these sessions.
Expected Family Contribution (EFC) - The amount of money a family is expected to contribute towards a student’s education. This amount is calculated by the federal government upon receipt of the Free Application for Federal Student Aid (FAFSA). Family taxable and non-taxable income, assets, size of family and number of students attending college among other factors are taken into account when calculating the EFC.

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-F-

Fair Credit Reporting Act - A law established by the federal government that allows individual the right to examine their own credit report.
FAFSA (Free Application for Federal Student Aid) - The Federal government’s official application that must be completed in order to be eligible for federal aid and many other types of aid provided by your state and/or college/university.
Federal Family Education Loan Program (FFELP) - A federal loan program in which the lender is a bank, credit union, savings & loan association or other organization.
Federal Direct Student Loan Program (FDSLP) - A loan program in which the lender is the federal government and the school manages funds.
Federal Pell Grant - A federal grant awarded to undergraduate students based on need.
Federal Perkins Loan - A federal loan awarded by colleges to students based on need with a 5% fixed interest rate.
Federal Stafford Loan - A federal loan awarded to students based on need with a subsidized option, where the federal government will cover interest payments while the student attends college and an unsubsidized option, where the student is responsible for all interest charges. Federal Supplemental Educational Opportunity Grant (FSEOG) - A federal grant awarded to only the neediest students.
Federal Work-Study - A program that allows undergraduate and graduate students to work part-time while attending school. Work-Study funds are awarded based on need, the school’s level of funding and when the student applies for financial aid. The amount of money a student earns during their work-study position cannot exceed the amount they are awarded by their school.
Financial Aid Package/Award Letter - The overall package of grants, scholarships, work-study and loans offered to a student by a school’s financial aid office.
Finance Charge - A fee charged to your account and added to your outstanding balance.
Financial Need - The difference between the Cost of Attendance (COA) and the Expected Family Contribution (EFC).
Financial Planner - A professional trained to help individuals establish and attain long-term financial goals. Fixed Interest – An interest rate that remains the same over the life of a loan.
Forbearance - A temporary period, as agreed by the lender, in which no principal payments or smaller loan payments are due to the lender. Typically, a borrower must meet certain criteria in order to be considered for forbearance. In general, interest continues to accrue while a loan is in forbearance.

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-G-

Garnishment - A court order that allows a creditor to deduct a certain portion of a borrower's salary prior to the paycheck being given to the employee when the borrower has not responded to notices regarding their unpaid debts.
Gift Aid - Financial aid such as scholarships and grants that a student does not need to repay.
Grace Period - Credit cards: The period of time between the purchase date and the date that the purchase begins to accrue interest. Student loans: The period of time after you drop below half time status, leave school or graduate and your loan repayment term begins.
Grant - Financial aid awarded to a student based on need that does not need to be repaid.
Guarantee Agency (a.k.a. Guarantor) - A state agency or private nonprofit institution that is responsible for approving student loans and insuring lenders against losses due to a borrower’s default, death, bankruptcy or disability. Guarantors are also often accountable for overseeing the loan process and enforcing federal and state regulations for administering student loans.
Guarantee Fee - A fee, typically paid by the borrower to the guarantee agency, used to insure the loan against default. Guarantee fees on federal student loans cannot exceed 1% of the loan amount and are deducted from the principal loan amount prior to the loan’s disbursement.

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-H-

Holder - The lender, institution or agency that owns the legal title to a borrower’s loan. The holder may be the original lender, a secondary market to which the loan was sold by the original lender, or in the event that the loan has defaulted, the guarantee agency.

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-I-

Identity Theft - When someone uses your personal information to access credit in your name. Your social security number, name, and driver’s license number can all be stolen for someone else’s personal gain.
Income Contingent Repayment - A program in which the size of a student loan payment is contingent upon the borrower’s income. As the borrower’s income increases, the size of the monthly student loan payments also increases.
Independent Student - A student that is at least 24-years old by January 1st of the academic year and reports only his or her income and if relevant, their spouses income when applying for federal aid or a student that is under the age of 24 and not claimed as a dependent by their parents during the previous tax year, a veteran of the U.S. Armed Forces, an orphan or ward of the court, a graduate student or a supporter of a legal dependent themselves. A student cannot legally declare independence simply because their parents will not help fund the cost of their education.
Inflation - Increase in the overall cost of services, products, and goods.
Institutional Methodology - The method that a particular institution of higher learning uses to determine how much they believe a family is able to contribute to the cost of their child’s education. The institutional methodology is used to determine how institutional funds are awarded and cannot be used when awarding federal government funds.
Interest - The charge for the privilege of borrowing money.
Interest Rate - The rate paid on borrowed money expressed as a percentage of the amount borrowed.
Interest Capitalization - The process of adding accrued interest to the principal balance of that loan. Interest is typically capitalized after a period of payment deferral, delinquency, or forbearance.

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-J-

No terms at this time.

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-K-

No terms at this time.

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-L-

Lender - The institution that provides funds to eligible or approved applicants.
Liability - A debt an individual is obligated to pay.
Loan - Money that is borrowed and must be repaid with interest.
Loan Forgiveness - When the a student loan is either reduced or cancelled when a borrower meets certain criteria such as performing military service, teaching in a critical subject in a high need area, etc.

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-M-

Merit-based Aid - Aid that is awarded to a student based on academic or other merit. Financial need is not necessarily considered when awarding merit-based aid.
Money Market Account - A type of account where higher than normal deposits are made in exchange for a higher rate of return than a typical savings account.
Mutual Fund - An investment company that continually offers new shares and buys existing shares back at the request of the shareholder and uses its capital to invest in various securities.

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-N-

Need Analysis - The method used to calculate how much money a family is able to contribute to their child’s college education. In order to be considered for financial aid, a family must submit a Free Application for Federal Student Aid (FAFSA) and a CSS PROFILE and/or any supplemental forms required by the college/university, if applicable. The formula used to determine need is as follows:

Cost of Attendance (COA) - Expected Family Contribution =Financial Need

Need-Based Aid - Financial aid that is awarded based on financial need and not on merit such as academic or athletic achievements.
Need Blind Admission - A school policy in which financial need is not taken into consideration when deciding whether or not to admit a student. Not all schools have a need-blind admission policy.
Need Sensitive Admission - A school policy in which financial need is considered when deciding whether or not to admit, reject or wait list a particular student.

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-O-

Origination Fee - A fee, typically paid by the borrower to the lender, generally used to fund the costs of administering a loan. Origination fees are often deducted from the principal loan amount prior to the loan’s disbursement.

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-P-

Pell Grant - See Federal Pell Grant.
Perkins Loan - See Federal Perkins Loan.
PLUS Loan - A federal loan available to the parents of dependent undergraduate students and to graduate students used to help finance the cost of education. Parents and grad students are able to borrow up to the cost of attendance less any other financial aid. A credit check is often required by a lender or the federal government in order to be eligible for a PLUS loan. PLUS loans are used to help fund the Expected Family Contribution (EFC) and/or any unmet financial need and must be repaid with interest.
Prime Rate - A short-term interest rate quoted by a commercial bank as an indication of the rate being charged on loans to its best commercial customers. Banks and other lenders frequently charge more and sometimes less than the quoted prime rate. The Prime Rate is a benchmark against which other rates are often compared and measured.
Principal - The amount of money borrowed or the amount that remains unpaid on a loan. The term principal also often refers to the amount of a payment that reduces the outstanding principal balance of a loan.
Private Loan - See Alternative Loan.
Promissory Note - The legal and binding document in which borrowers are required to sign prior to loan funds being disbursed. The Promissory Note states all terms and conditions of the loan.

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-Q-

No terms at this time.

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-R-

Renewable Scholarship - A scholarship issued to a student for more than one year. Typically, the student must meet certain requirements in order to maintain the scholarship.
Repayment Schedule - A document that outlines the monthly payment amount, payment due dates, interest rate and total repayment period of a student loan.
Repayment Term - The period of time as stated in the promissory note in which a borrower agrees to repay a loan.
Revolving Credit - A predetermined amount of credit available to an individual. As purchases are made, an individual’s available credit declines and as payments are made, the credit increases.

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-S-

Savings Account - A type of account to which deposits are made and interest is typically paid to the account holder.
Scholarship - A form of gift-aid that does not have to be repaid. Eligibility may include a need component or a merit component such as outstanding academic achievement.
Secondary Market - An institution or organization that purchases loans from lenders thereby giving lenders capital to issue more loans.
Self-Help Aid - Financial aid such as student loans and work-study that requires some sort of investment from the student.
Servicer - A business or company that manages the billing and/or administration of loans.
Simple Interest - Interest that is paid only on principal. Interest is not compounded.
Stafford Loan - See Federal Stafford Loan.
State Grants - A financial aid program that is run by the state and available for state residents. Grants do not need to be repaid.
Student Aid Report (SAR) - An official document students and parents receive after completing the FAFSA that notifies them of their eligibility to receive financial aid and their Expected Family Contribution (EFC).
Student Contribution - The amount of money the federal government expects the student to contribute to the cost of his or her education.
Subsidized Stafford Loan - A student loan in which the federal government will pay any interest accrued while the student is attending school, in grace or in deferment.

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-T-

No terms at this time.

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-U-

Unmet Need (a.k.a. Gap) - Any financial need that is unmet by the financial aid package a school’s Financial Aid Office awards to a student. Ideally, a school will provide the full amount of aid needed to met financial need as determined by the school and/or the federal government (Cost of Attendance – Expected Family Contribution = Financial Need). However, due to budgetary constraints, schools are often not able to provide this full amount of aid. The amount of money the family is expected to contribute over the EFC is known as unmet need or gap.
Unsubsidized Stafford Loan - A loan in which the student is fully responsible for paying all interest charges accrued while they are in school, deferment, in his/her grace period or in repayment.
US Department of Education -The federal agency that administers many student aid programs such as Federal Stafford Loans, Federal Pell Grants, Federal Work-Study, Federal PLUS Loans and Federal Perkins Loans.

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-V-

Variable Interest Rate - An interest rate that changes periodically throughout the life of the loan. Variable interest rates are often based off of Treasury bill rates, the Prime rate, or the Libor rate and may change monthly, quarterly, semi-annually or annually.

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-W-

Work-Study - See Federal Work-Study.

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-X-

No terms at this time.

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-Y-

Yield - The rate of return on an investment.

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-Z-

No terms at this time.

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