Glossary of Terms
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.
The date on which interest charges on an educational loan begin to accrue. See also Subsidized Loan.
See Private Loans.
The process of gradually repaying a loan over an extended period of time through periodic installments of principal and interest.
A formal request to have a financial aid administrator review your aid eligibility and possibly use Professional Judgment to adjust the figures. For example, if you believe the financial information on your financial aid application does not reflect your family's current ability to pay (e.g., because of death of a parent, unemployment, or other unusual circumstances), you should definitely make an appeal. The financial aid administrator may require documentation of the special circumstances or of other information listed on your financial aid application.
An item of value, such as a family's home, business, and farm equity, real estate, stocks, bonds, mutual funds, cash, certificates of deposit (CDs), bank accounts, trust funds, and other property and investments.
An official document issued by a school's financial aid office that lists all of the financial aid awarded to the student. This letter provides details on their analysis of your financial need and the breakdown of your financial aid package according to amount, source, and type of aid. The award letter will include the terms and conditions for the financial aid and information about the cost of attendance.
The academic year for which financial aid is requested (or received).
The undergraduate degree granted by four-year colleges and universities.
The tax year prior to the academic year (award year) for which financial aid is requested. Financial information from this year is used to determine eligibility for financial aid.
The person who receives the loan.
See Cost of Attendance.
Financial aid programs are administered by the university. The federal government provides the university with a fixed annual allocation, which is awarded by the financial aid administrator to deserving students. Such programs include the Perkins Loan, Supplemental Education Opportunity Grant, and Federal Work-Study. Note that there is no guarantee that every eligible student will receive financial aid through these programs because the awards are made from a fixed pool of money.
Some loan programs provide for cancellation of the loan under certain circumstances, such as death or permanent disability of the borrower. Some of the federal student loan programs have additional cancellation provisions. For example, if the student becomes a teacher in certain national shortage areas, they may be eligible for cancellation of all or part of the balance of their educational loans. Repayment assistance is available if you serve in the military; the military pays off a portion of your loans for every year of service.
An increase in the value of an asset such as stocks, bonds, mutual funds, and real estate between the time the asset was purchased and the time the asset was sold.
The practice of adding unpaid interest charges to the principal balance of an educational loan, thereby increasing the size of the loan. Interest is then charged on the new balance, including both the unpaid principal and the accrued interest. Capitalizing the interest increases the monthly payment and the amount of money you will eventually have to repay. If you can afford to pay the interest as it accrues, you are better off not capitalizing it. Capitalization is sometimes called compounding. See also Unsubsidized Loans.
A nonprofit educational association of colleges, universities, educational systems, and other educational institutions. For more information, see College Board Online (CBO).
Color of Federal Forms
The FAFSA and SAR change color each year in a four-color rotation:
and Blue (2006-07)
then it repeats. This will help you make sure you're filing the correct form. Purple has remained the parent color since 1999-2000.
Common Law Marriage
If a couple cohabits while holding themselves out as being married, they are considered to be married in the following 16 states:
- District of Columbia
- Georgia (if created before 1/1/1997)
- Idaho (if created before 1/1/1996)
- New Hampshire (for inheritance purposes only, effective only at death)
- Ohio (if created before 10/10/1991)
- Rhode Island
- South Carolina
Community property laws specify that property is owned jointly by husband and wife unless there is a specific agreement to the contrary (i.e., prenuptial agreements).
A student who lives at home and commutes to school every day.
Interest that is paid on both the principal balance of the loan and on any accrued (unpaid) interest. Capitalizing the interest on an unsubsidized Stafford loan is a form of compounding.
(Also called Loan Consolidation) A loan that combines several student loans into one bigger loan from a single lender. The consolidation loan is used to pay off the balances on the other loans.
A cosigner on a loan assumes responsibility for the loan if the borrower should fail to repay it.
Cost of Attendance (COA)
(Also known as the cost of education or "budget") The total amount it should cost the student to go to school, including tuition and fees, room and board, allowances for books and supplies, transportation, and personal and incidental expenses. Loan fees, if applicable, may also be included in the COA. Child care and expenses for disabilities may also be included at the discretion of the financial aid administrator. Schools establish different standard budget amounts for students living on-campus and off-campus, married and unmarried students, and in-state and out-of-state students.
If a student's parents are divorced or separated, the custodial parent is the one with whom the student lived the most during the past 12 months.
A loan is in default when the borrower fails to pay several regular installments on time (i.e., payments overdue by 180 days) or otherwise fails to meet the terms and conditions of the loan. If you default on a loan, the university, the holder of the loan, the state government, and the federal government can take legal action to recover the money, including garnishing your wages and withholding income tax refunds. Defaulting on a government loan will make you ineligible for future federal financial aid unless a satisfactory repayment schedule is arranged, and can affect your credit rating.
Occurs when a borrower is allowed to postpone repaying the loan. If you have a subsidized loan, the federal government pays the interest charges during the deferment period. If you have an unsubsidized loan, you are responsible for the interest that accrues during the deferment period. You can still postpone paying the interest charges by capitalizing the interest, which increases the size of the loan. Most federal loan programs allow students to defer their loans while they are in school at least half time. If you don't qualify for a deferment, you may be able to get a forbearance. You can't get a deferment if your loan is in default.
If the borrower fails to make a payment on time, the borrower is considered delinquent and late fees may be charged. If the borrower misses several payments, the loan goes into default.
Determines to what degree a student has access to parent financial resources.
For a child or other person to be considered your dependent, they must live with you and you must provide them with more than half of their support. Spouses do not count as dependents in the Federal Methodology. You and your spouse cannot both claim the same child as a dependent. (See also Independent.)
To release the borrower from his or her obligation to repay the loan. See also Cancellation.
Provides the borrower with information about the actual cost of the loan, including the interest rate, origination, insurance, loan fees, and any other types of finance charges. Lenders are required to provide the borrower with a disclosure statement before issuing a loan.
A program with earlier deadlines and earlier notification dates than the regular admissions process. Students who apply to an early decision program commit to attending the school if admitted (thus, early decision can be applied to only one school). You should only participate in an early decision program if the school is your first choice and you won't want to consider other schools.
Electronic Funds Transfer (EFT)
Used by some schools and lenders to wire funds for Stafford and PLUS loans directly to participating schools without requiring an intermediate check for the student to endorse. The money is transferred electronically instead of using paper, and hence is available to the student sooner. If you have a choice of funds transfer methods, use EFT.
Someone who is not a U.S. citizen but is nevertheless eligible for federal student aid. Eligible non-citizens include U.S. permanent residents who are holders of valid green cards, U.S. nationals, holders of form I-94 who have been granted refugee or asylum status, and certain other non-citizens. Non-citizens who hold a student visa or an exchange visitor visa are not eligible for federal student aid.
To release a child from the control of a parent or guardian. Declaring a child to be legally emancipated is not sufficient to release the parents or legal guardians from being responsible for providing for the child's education. If this were the case, then every parent would "divorce" their children before sending them to college. The criteria for a child to be found independent are much stricter. See Dependency Status.
An indication of whether you are a full-time or part-time student. Generally you must be enrolled at least half-time (and in some cases full-time) to qualify for financial aid.
Entitlement programs award funds to all qualified applicants. The Pell Grant is an example of such a program.
See Loan Interviews.
See Loan Interviews.
Expected Family Contribution (EFC)
The amount of money that the family is expected to be able to contribute to the student's education. The EFC includes the parent contribution and the student contribution, and depends on the student's dependency status, family size, number of family members in school, taxable and nontaxable income, and assets. The difference between the COA and the EFC is the student's financial need, and is used in determining the student's eligibility for need-based financial aid. If you have unusual financial circumstances (such as high medical expenses, loss of employment, or death of a parent) that may affect your ability to pay for your education, tell your financial aid administrator (FAA). He or she can adjust the COA or EFC to compensate. See Professional Judgment.
Federal Family Education Loan Program (FFELP)
Includes the Federal Stafford Loan (Subsidized and Unsubsidized), the Federal Perkins Loan, and the Parent Loan for Undergraduate Students (PLUS). The funds for these loans are provided by private lenders, such as banks, credit unions, and savings and loan associations. These loans are guaranteed against default by the federal government.
The need analysis formula used to determine the EFC. The Federal Methodology takes family size, the number of family members in college, taxable and nontaxable income, and assets into account. Unlike most Institutional Methodologies, however, the Federal Methodology does not consider the net value of the family residence.
Federal Work-Study (FWS)
Program providing undergraduate and graduate students with part-time employment during the school year. The federal government pays a portion of the student's salary, making it cheaper for departments and businesses to hire the student. For this reason, work-study students often find it easier to get a part-time job. Eligibility for FWS is based on need. Money earned from a FWS job is not counted as income for the subsequent year's need analysis process.
Money provided to the student and the family to help them pay for the student's education. Major forms of financial aid include gift aid (grants and scholarships) and self-help aid (loans and work).
Financial Aid Administrator (FAA)
A college or university employee who is involved in the administration of financial aid. Some schools call FAAs "Financial Aid Advisors" or "Financial Aid Counselors."
Financial Aid Notification (FAN)
See Award Letter.
Financial Aid Office (FAO)
The college or university office that is responsible for the determination of financial need and the awarding of financial aid.
Financial Aid Package
The complete collection of grants, scholarships, loans, and work-study employment from all sources (federal, state, institutional, and private) offered to a student to enable them to attend the college or university. Note that unsubsidized Stafford Loans and PLUS Loans are not considered part of the financial aid package, since these financing options are available to the family to help them meet the EFC.
A first-year undergraduate student who has no unpaid loan balances outstanding on the date he or she signs a promissory note for an educational loan. First-time borrowers may be subjected to a delay in the disbursement of the loan funds. The first loan payment is disbursed 30 days after the first day of the enrollment period. If the student withdraws during the first 30 days of classes, the loan is canceled and does not need to be repaid. Borrowers with existing loan balances aren't subject to this delay.
In a fixed interest loan, the interest rate stays the same for the life of the loan.
During a forbearance, the lender allows the borrower to temporarily postpone repaying the principal, but the interest charges continue to accrue, even on subsidized loans. The borrower must continue paying the interest charges during the forbearance period. Forbearances are granted at the lender's discretion, usually in cases of extreme financial hardship or other unusual circumstances when the borrower does not qualify for a deferment. You can't receive a forbearance if your loan is in default.
Free Application for Federal Student Aid (FAFSA)
Form used to apply for Pell Grants and all other need-based aid. As the name suggests, no fee is charged to file a FAFSA.
Financial aid, such as grants and scholarships, which does not need to be repaid.
A short time period after graduation during which the borrower is not required to begin repaying his or her student loans. The grace period may also kick in if the borrower leaves school for a reason other than graduation or drops below half-time enrollment. Depending on the type of loan, you will have a grace period of six months (Stafford Loans) or nine months (Perkins Loans) before you must start making payments on your student loans. The PLUS Loans do not have a grace period.
A student who is enrolled in a Master's degree or PhD program.
A schedule where the monthly payments are smaller at the start of the repayment period and gradually become larger.
A type of financial aid based on financial need that the student does not have to repay.
Income before taxes, deductions, and allowances have been subtracted.
Guarantee Agency or Guarantor
State agencies responsible for approving student loans and insuring them against default. Guarantee agencies also oversee the student loan process and enforce federal and state rules regarding student loans.
A small percentage of the loan that is paid to the guarantee agency to insure the loan against default. The insurance fee is usually 1% of the loan amount (and by law cannot exceed 3% of the loan amount).
Most financial aid programs require that the student be enrolled at least half-time to be eligible for aid. Some programs require the student to be enrolled full-time.
The lender, institution, or agency that holds legal title to a loan. The holder may be the bank that issued the loan, a secondary market that purchased the loan from the bank, or a guarantee agency if the borrower defaulted on the loan.
Current market value of a home less the mortgage's remaining unpaid principal. It is based on the market value, not the insurance or tax value. For a conservative estimate of your home's market value, try using the Federal Housing Index Calculator.
The amount of money received from employment (salary, wages, tips), profit from financial instruments (interest, dividends, capital gains), or other sources (welfare, disability, child support, Social Security, and pensions).
Income Contingent Repayment
Under an income contingent repayment schedule, the size of the monthly payments depends on the income earned by the borrower. As the borrower's income increases, so do the payments. The income contingent repayment plan is not available for PLUS Loans.
An independent student is at least 24 years old as of January 1 of the academic year, is married, is a graduate or professional student, has a legal dependent other than a spouse, is a veteran of the U.S. Armed Forces, or is an orphan or ward of the court (or was a ward of the court until age 18). A parent refusing to provide support for their child's education is not sufficient for the child to be declared independent. (See also Dependent.)
Individual Retirement Account (IRA)
One of several popular types of retirement funds. It is not legal to borrow money from your IRA to help pay for your children's education.
Institutional Methodology (IM)
If a college or university uses its own formula to determine financial need for allocation of the school's own financial aid funds, the formula is referred to as the Institutional Methodology.
Institutional Student Information Report (ISIR)
The electronic version of SARs delivered to schools by EDExpress.
Amount charged to the borrower for the privilege of using the lender's money. Interest is usually calculated as a percentage of the principal balance of the loan. The percentage rate may be fixed for the life of the loan or may be variable, depending on the terms of the loan. All federal loans issued since October 1992 use variable interest rates that are pegged to the cost of U.S. Treasury Bills.
A bank, credit union, savings and loan association, or other financial institution that provides funds to the student or parent for an educational loan.
Line of Credit
Pre-approved loan that lets you borrow money up to a pre-set credit limit, usually by writing checks. A line of credit doesn't cost you anything until you write a check, and then you begin repayment just like a regular loan.
A type of financial aid that must be repaid, with interest. The federal student loan programs are a good method of financing the costs of your college education. These loans are better than most consumer loans because they have lower interest rates and do not require a credit check or collateral. The Stafford Loans and Perkins Loans also provide a variety of deferment options and extended repayment terms.
See Consolidation Loan.
The federal government cancels all or part of an educational loan because the borrower meets certain criteria (e.g., is performing military or volunteer service).
Students with educational loans are required to meet with a financial aid administrator before they receive their first loan disbursement and again before they graduate or otherwise leave school. During these counseling sessions, called entrance and exit interviews, the FAA reviews the repayment terms of the loan and the repayment schedule with the student.
The date when a loan comes due and must be repaid in full.
Merit-basedFinancial aid that is merit-based depends on your academic, artistic, or some other criteria, and does not depend on the existence of financial need. Merit-based awards use your grades, test scores, hobbies, and special talents to determine your eligibility for scholarships.
The difference between the COA and the EFC is the student's financial need—the gap between the cost of attending the school and the student's resources. The financial aid package is based on the amount of financial need. The process of determining a student's need is known as need analysis.
|Cost of Attendance (COA)|
|-||Expected Family Contribution (EFC)|
The process of determining a student's financial need by analyzing the financial information provided by the student and his or her parents (and spouse, if any) on a financial aid form. The student must submit a need analysis form to apply for need-based aid. Need analysis forms include the Free Application for Federal Student Aid (FAFSA) and the Financial Aid PROFILE.
Financial aid that is need-based depends on your financial situation. Most government sources of financial aid are need-based.
This is income after taxes, deductions, and allowances have been subtracted.
Oberlin College Employment
Oberlin College Employment is simply a part-time job on campus. Oberlin College Employment is not the Federal Work-Study Program.
Fee paid to the bank to compensate them for the cost of administering the loan. The origination fees are charged as the loan is disbursed, and typically run to 3% of the amount disbursed.
Aid or benefits available because a student is in school that is counted after need is determined. Outside scholarships, prepaid tuition plans, and VA educational benefits are examples of outside resources.
A scholarship that comes from sources other than the school and the federal or state government.
The process of assembling a financial aid package.
Parent Contribution (PC)
An estimate of the portion of your educational expenses that the federal government believes your parents can afford. It is based on their income, the number of parents earning income, assets, family size, the number of family members currently attending a university, and other relevant factors. Students who qualify as independent are not expected to have a parent contribution.
Parent Loans for Undergraduate Students (PLUS)
Federal loans available to parents of dependent undergraduate students to help finance the child's education. Parents may borrow up to the full cost of their children's education, less the amount of any other financial aid received. PLUS Loans may be used to pay the EFC. There is a minimal credit check required for the PLUS Loan, so a good credit history is required. Check with your local bank to see if they participate in the PLUS Loan program. If your application for a PLUS Loan is turned down, your child may be eligible to borrow additional money under the Unsubsidized Stafford Loan program.
A federal grant that provides funds based on the student's financial need.
The Perkins Loan allows students to borrow up to $4,000/year (5-year maximum) for undergraduate school. The Perkins Loan has one of the lowest interest rates and is awarded by the financial aid administrator to students with exceptional financial need. The student must file the FAFSA to be eligible. The interest on the Perkins Loan is subsidized while the student is in school.
Paying off all or part of a loan before it is due.
The amount of money borrowed or remaining unpaid on a loan. Interest is charged as a percentage of the principal. Insurance and origination fees will be deducted from this amount before disbursement.
Education loan programs established by private lenders to supplement the student and parent education loan programs available from federal and state governments.
Professional Judgment (PJ)
For need-based federal aid programs, the financial aid administrator can adjust the EFC, adjust the COA, or change the dependency status (with documentation) when extenuating circumstances exist. For example, if a parent becomes unemployed, disabled, or deceased, the FAA can decide to use estimated income information for the award year instead of the actual income figures from the base year. This delegation of authority from the federal government to the financial aid administrator is called Professional Judgment.
The binding legal document that must be signed by the student borrower before loan funds are disbursed by the lender. The promissory 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.
A scholarship that is awarded for more than one year. Usually the student must maintain certain academic standards to be eligible for subsequent years of the award. Some renewable scholarships will require the student to reapply for the scholarship each year; others will just require a report on the student's progress to a degree.
The repayment schedule discloses the monthly payment, interest rate, total repayment obligation, payment due dates and the term of the loan.
The term of a loan is the period during which the borrower is required to make payments on his or her loans. When the payments are made monthly, the term is usually given as a number of payments or years.
Satisfactory Academic Progress (SAP)
A student must make this in order to continue receiving federal 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.
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. Scholarships are a form of gift aid and do not have to be repaid. Many scholarships are restricted to students in specific courses of study or with academic, athletic, or artistic talent.
Registration for the military draft. Male students who are U.S. citizens and have reached the age of 18 and were born after December 31, 1959, must be registered with Selective Service to be eligible for federal financial aid. If the student did not register and is past the age of doing so (18-25), and the school determines that the failure to register was knowing and willful, the student is ineligible for all federal student financial aid programs. The school's decision as to whether the failure to register was willful is not subject to appeal. Students needing help resolving problems concerning their Selective Service registration should call 1-847-688-6888.
Financial aid in the form of loans and student employment.
An organization that collects payments on a loan and performs other administrative tasks associated with maintaining a loan portfolio. Loan servicers disburse loans funds, monitor loans while the borrowers are in school, collect payments, process deferments and forbearances, respond to borrower inquiries, and ensure that the loans are administered in compliance with federal regulations and guarantee agency requirements.
Federal loans that come in two forms, subsidized and unsubsidized. Subsidized loans are based on need; unsubsidized loans aren't. The interest on the Subsidized Stafford Loan is paid by the federal government while the student is in school and during the 6-month grace period. 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 the third, fourth and fifth years). These limits are for subsidized and unsubsidized loans combined. The difference between the subsidized loan amount and the limit may be borrowed by the student as an unsubsidized loan.
Higher Unsubsidized Stafford Loan limits are available to independent students, dependent students whose parents were unable to obtain a PLUS Loan. Undergraduates may borrow up to $46,000 ($6,625 during the freshman year, $7,500 during the sophomore year, and $10,500 during each subsequent year). These limits are for subsidized and unsubsidized loans combined. The amounts of any subsidized loans are still subject to the lower limits.
Student Accounts Office
The college office that is responsible for the billing and collection of college charges.
Student Aid Report (SAR)
Report that summarizes the information included in the FAFSA and must be provided to your school's financial aid office. The SAR will also indicate the amount of Pell Grant eligibility, if any, and the Expected Family Contribution (EFC). You should receive a copy of your SAR four to six weeks after you file your FAFSA.
The amount of money the student is expected to contribute to his or her education and is included as part of the EFC.
With a subsidized loan, such as the Perkins Loan or the Subsidized Stafford Loan, the government pays the interest on the loan while the student is in school, during the six-month grace period and during any deferment periods. Subsidized loans are awarded on the basis of financial need and may not be used to finance the family contribution. See Stafford Loans for information about Subsidized Stafford Loans. See also Unsubsidized Loan.
Supplemental Education Opportunity Grant
Federal grant program for undergraduate students with exceptional need. SEOG grants are awarded by the school's financial aid office and provide up to $4,000 per year. To qualify, a student must also be a recipient of a Pell Grant.
The number of years (or months) during which the loan is to be repaid.
Title IV Loans
Title IV of the Higher Education Act of 1965 created several education loan programs which are collectively referred to as the Federal Family Education Loan Program (FFELP). These loans, also called Title IV Loans, are the Federal Stafford Loans (Subsidized and Unsubsidized), Federal PLUS Loans, and Federal Consolidation Loans.
Title IV School Code
When you fill out the FAFSA you need to supply the Title IV Code for each school to which you are applying. This code is a six-character identifier that begins with one of the following letters: O, G, B, or E. The Financial Aid Information Page provides a searchable database of Title IV School Codes.
A student who is enrolled in a Bachelor's degree program.
Interest income, dividend income, and capital gains.
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, even while the student is still in school. Students may avoid paying the interest while they are in school by capitalizing the interest, which increases the loan amount. Unsubsidized loans are not based on financial need and may be used to finance the family contribution. See Stafford Loans for information about unsubsidized Stafford Loans. See also Subsidized Loan.
Contributions to IRAs, Keoghs, tax-sheltered annuities, and 401k plans, as well as worker's compensation and welfare benefits.
Verification is a review process in which the financial aid office determines the accuracy of the information provided on the student's financial aid application. During the verification process, the student and parent will be required to submit documentation for the amounts listed (or not listed) on the financial aid application. Such documentation may include signed copies of the most recent federal and state income tax returns for you, your spouse (if any) and your parents, proof of citizenship, proof of registration with Selective Service, and copies of Social Security benefit statements and W2 and 1099 forms, among other things.
If any discrepancies are uncovered during verification, the financial aid office may require additional information to clear up the discrepancies. Such discrepancies may cause your final financial aid package to be different from the initial package described on the award letter you received from the school.
If you refuse to submit the required documentation, your financial aid package will be cancelled and no aid awarded.
For federal financial aid purposes such as determining dependency status, a veteran is a former member of the U.S. Armed Forces (Army, Navy, Air Force, Marines, or Coast Guard) who served on active duty and was discharged other than dishonorably (i.e., received an honorable or medical discharge). You are a veteran even if you serve just one day on active duty, not active duty for training, before receiving your DD-214 and formal discharge papers. (Note that in order for a veteran to be eligible for VA educational benefits, they must have served for more than 180 consecutive days on active duty before receiving an honorable discharge. There are exceptions for participation in Desert Storm/Desert Shield and other military campaigns.)
1040 Form, 1040A Form, 1040EZ Form
The Federal Income Tax Return. Every person who has received income during the previous year must file a form 1040 with the IRS by April 15.
Form used by business to report income paid to a non-employee. Banks use this form to report interest income.
A popular type of retirement fund. It is legal to borrow money from your 401(k) to help pay for your children's education.