Financial Aid Glossary of Terms
This page contains many commonly used financial aid terms.
The definitions provided are good working definitions to help you
better understand as much of the financial aid process, options,
and requirements as possible. For official definitions please go to
U.S. Dept. of Education.
- Borrower Benefits
Borrower benefits are ways that lenders can distinguish themselves
from other lenders with varying programs and offers that they can
give to their borrowers. Each lender will have some type of borrower
benefits and they will vary from lender to lender and might be
dependant on the credit standing of the borrower and co-borrower, if needed.
- Cost of Attendance
The cost of attendance includes both direct costs to the school, such as tuition, fees, room, and board, but also indirect costs, like books, travel expenses, and miscellaneous expenses. Each school, under federal guidelines, will determine their own cost of attendance using all of these factors. Students are then allowed to receive financial aid to cover the complete cost of attendance.
- Co-signer
A co-signer is someone, usually a parent, who signs with the student on a loan application. Their credit is used to help determine eligibility for a loan for the student. Many private loans require a co-signer unless the student has their own established credit and it is in good standing. Stafford and Perkins loans do not require a co-signer.
- Deferment
Student loans are in deferment when a student is enrolled in a degree seeking program on at least a half time basis, which is typically enrolled for at least 5 or 6 credits depending on the school and program. Once a student is not enrolled or is enrolled less than half time, the loans change status to either in their Grace Period, or if the grace period has been exhausted then the loans would be in repayment or forbearance.
- Dependant Student
A dependant student is directly defined by the 8 questions on the federal FAFSA form in section 3. Answering ‘NO’ to all of these questions defines the student as ‘dependant’ for financial aid purposes. Answering ‘YES’ to any one of the questions, defines the student as ‘independent’ for financial aid purposes. School aid officials have the right to override the FAFSA determination but under very strict guidelines. Students commonly mistake living on their own or filing their own tax return as being independent when, for financial aid purposes, they are still dependant. Please check with your school to understand better the guidelines for determining dependency or independency.
- EFC (Expected Family Contribution)
The EFC is a number value determined as a result of a completed FAFSA. Generally, this number is the amount of money that the government is saying that the family should be able to pay for educational purposes for that specific student in that specific academic year. Please know that this number will be higher than what you think you can reasonably afford for educational expenses. The government will use this number directly to determine PELL grant eligibility. Some schools will use this number as a guide while others will use it directly to determine other need-based aid eligibility.
- Entrance Interview
Stafford, Direct, and Perkins loans require a brief on-line or written interview before the loans can be processed. The Interview is to ensure that the borrower understands not only their responsibilities as a borrower but also their rights. This also referred to as the ‘Rights and Responsibilities’ or Loan Counseling. Check with your school to see how they will conduct their Entrance Interview process. Most private loans do not require and entrance interview.
- FAFSA
The FAFSA is the Free Application for Federal Student Aid.
It is the main application for federal loans, federal grants, state grants,
federal work study, and institutional need based aid.
It is recommended that all students file a FAFSA every year they are in school.
It is also recommended that the FAFSA be filed on-line at www.fafsa.ed.gov.
Paper forms can be found at many high schools guidance counselor offices or
at your college financial aid office.
- Federal Work Study (College Work Study)
Federal, of College Work Study is a program found at most schools who provide federal funding in which the federal government helps to pay students’ pay checks for work that they do on the college campus or for the college. It is a need-based program determined directly from the results of the FAFSA.
- Financial Need
Financial Need is the Cost of attendance, as determined by the school, minus the Expected Family Contribution. The difference then is what the school and the government will call the students’ financial need and all need-based funds will be evaluated based on this number.
- Fixed Interest Rate
A fixed interest rate is a rate that will not change regardless of the federal prime rate or the LIBOR rate. The interest rate will remain the same throughout the life of the loan, until it is paid in full. Stafford, PLUS, and Perkins loans all have a fixed interest rate.
- Grace Period
A student’s Grace Period is the period of time after the student is enrolled in school at least on a half time basis in which no payments are required by the lender on their student loans. Perkins loans have a grace period of 9 months. Stafford loans have a grace period of 6 months. Private, or alternative loans, have a grace period of anywhere from 6 to 12 months, depending on the lender. The grace period is in effect as soon as the student is reported as not being enrolled in school at least half time (typically 5-6 credits in one term). If the student re-enrolls within their grace period then they do not lose their ability to be in a grace period in the future. If a student stays un-enrolled for a period of time longer than the grace period then the grace period is lost and payments are required. A student may still re-enroll in school and their loans would then be in deferment but once out of school again their loans would go immediately into repayment.
- Grants
Grants are free money usually based on financial need that can be used for all educational expenses. Grants do not need to be repaid. Grants can come from various sources, including institutional, state, federal, and private sources.
- Independent Student
See ‘Dependant Student’.
- Interest
Interest is the money charged by a lender on top of the principle loan amount borrowed that needs to be repaid by the borrower. It is usually calculated monthly or quarterly and can be a fixed rate or a variable rate.
- Lender
The Lender actually funds the loan money for the borrower.
- Loan Certification
Most loans that are specifically for school expenses, such as Stafford, Direct, Perkins, PLUS, and most private student loans, need to be certified by a school official before the funds can be disbursed to the school. The school official certifies that the student is enrolled in the school and is eligible for the funds under all applicable eligibility requirements.
- Loan Counseling
See ‘Entrance Interview’.
- Loan Fees
Some loans and some lenders will charge a fee to the lender for funding their loan. The fee is usually a percentage of the loan amount. Some fees are taken out of the requested loan amount and other fees are added on top of the loan amount. Stafford loan lenders may charge a fee, depending on the lender chosen. Please check with your school or lender to see if there is a fee for your Stafford loan. Perkins loans do not charge a fee. Direct loans do charge a fee. Some PLUS lender will charge a fee and some may not. Check with your school and lender. Some Alternative (private) lenders will charge a fee and some will not. Check the ‘Details’ section of your Results Grid to see which private lenders do and which do not and how much of a fee they are charging.
- Loan Period
The Loan Period for a specific loan begins the first day of classes ands on the last day of classes. It may be the same as the Period of Enrollment but may not be if the loan is for less than the Period of Enrollment. Loan periods are generally not longer than the period of enrollment.
- Loan Servicer
The Loan Servicer, if used, is the agency who processes all of the information on behalf of the school and lender. Many schools use a loan servicer for their Stafford and PLUS loan processing.
- Master Promissory Note
Many loan types and lenders are now offering a Master Promissory Note in which the borrower signs a promissory note one time and then that note is used in subsequent years for additional similar loans that are taken out by the borrower.
- Pell Grant
The PELL Grant is a federal need-based grant. Eligibility is determined directly from the results of the FAFSA, specifically the calculated EFC. Students can receive up to $4310 per year as long as they are enrolled in an undergraduate degree seeking program.
- Period of Enrollment
The Period of Enrollment is calculated on a per academic year basis. It begins with the first day of classes in a particular academic year and ends on the last day of classes of that same academic year. Summers can be included but do not have to be. Each school will determine their own academic calendars and also their own periods of enrollment.
- Promissory Note
The Promissory Note is the legal and binding contract between borrower and lender. All funded loans will need to have a signed promissory note by the borrower and co-borrower, if used.
- Rights and Responsibilities
See ‘Entrance Interview’.
- Scholarships
Scholarships are usually awarded based on some form of merit for something the student has done or achieved. They can be from institutional, state, federal, and private sources. Please refer to our scholarship page to apply for private scholarships.
- SEOG Grant
The SEOG Grant is a federal need-based grant. SEOG stands for Supplemental Education Opportunity Grant. It is given to the schools for them to give to the students that they determine are the neediest at their school. Unlike the PELL Grant, it is a limited fund with each school so eligibility may depend on early filing of all financial aid forms. Please check with your school as to their eligibility requirements and dates.
- Stafford Loan Limits
Stafford loans are offered to undergraduate and graduate students on a year to year basis with yearly and aggregate loan limits based on year in school and total amount borrowed. Click here for Stafford Loan Limits. (Make the ‘here’ link to, http://www.finaid.org/loans/historicallimits.phtml but I don’t want to show the whole link.
- State Grants
Most states offer state funding for their residential students. Usually the student must enroll at an in-state school to receive funding but it is possible for students to receive a lesser amount at some out of state schools. Please check with your school and your home state for specific guidelines and eligibility standards. For Pennsylvania residents, please contact Pheaa at www.pheaa.org or by phone at 800.692.7392.
- Variable Interest Rate
A variable interest rate will adjust either monthly or quarterly, depending on the lender. It is usually tied to either the prime rate or LIBOR rate so as those rates fluctuate so does the variable interest rate for a loan. It can adjust both up and down and there is usually a cap or maximum that the rate cannot go above. Check with the lenders to see how they calculate their interest rates and if they have a cap. All private or alternative loans have a variable interest rate.
- Verification
Verification is a process by which the school collects tax data to verify that all FAFSA information has been filed correctly. The government will choose roughly 30% of all filers to be verified. Some schools will choose to verify a larger portion of students at their own discretion. If chosen by the government, the process is mandatory in order to receive any federal funding.