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Student Finance Glossary

30 terms — from FAFSA to work-study, defined in plain English.

C

Capitalization

The process of adding unpaid interest to the principal balance of a loan, increasing the total amount owed.

Cost of Attendance (COA)

The total estimated cost of attending a school for one academic year, including tuition, fees, room & board, books, transportation, and personal expenses.

D

Default

Failure to repay a loan according to the terms agreed upon. For federal student loans, default typically occurs after 270 days of missed payments.

Deferment

A temporary postponement of loan payments, typically available during school enrollment, unemployment, or economic hardship. Interest may not accrue on subsidized loans during deferment.

Direct PLUS Loan

A federal loan available to graduate students (Grad PLUS) or parents of undergraduates (Parent PLUS) to help pay for education expenses not covered by other financial aid.

E

EFC (Expected Family Contribution)

The former name for the number calculated from FAFSA that schools used to determine financial aid eligibility. Replaced by the Student Aid Index (SAI) in 2024.

Entrance Counseling

A required information session for first-time federal loan borrowers that explains the terms, conditions, and repayment obligations of student loans.

F

FAFSA

Free Application for Federal Student Aid. The form students file annually to qualify for federal grants, loans, and work-study. Also used by many states and colleges for their own aid programs.

Financial Need

The difference between a school's Cost of Attendance and the Student Aid Index (SAI). Determines eligibility for need-based financial aid.

Forbearance

A temporary reduction or suspension of loan payments. Unlike deferment, interest accrues on all loans during forbearance.

G

Grace Period

A set period after graduation, leaving school, or dropping below half-time enrollment before loan repayment begins. For most federal loans, this is 6 months.

Grant

Financial aid that does not need to be repaid, unlike loans. Grants are typically awarded based on financial need.

I

IBR (Income-Based Repayment)

A federal repayment plan that caps monthly payments at 10–15% of discretionary income. Remaining balance is forgiven after 20–25 years.

IDR (Income-Driven Repayment)

An umbrella term for federal repayment plans that base monthly payments on income and family size: SAVE, PAYE, IBR, and ICR.

Interest Rate

The percentage of the loan principal charged annually for borrowing. Federal student loan rates are set by Congress each year.

M

MPN (Master Promissory Note)

A legally binding contract between a borrower and the federal government listing the terms and conditions of a student loan.

N

Net Price

The actual cost of attending a school after all grants and scholarships are subtracted from the Cost of Attendance. This is the amount you need to cover from savings, income, or loans.

P

PAYE (Pay As You Earn)

A federal repayment plan that caps payments at 10% of discretionary income. Remaining balance is forgiven after 20 years.

Pell Grant

The largest federal grant program for undergraduates with financial need. Awards up to $7,395 per year (2024–25) and do not need to be repaid.

Principal

The original amount borrowed on a loan, not including interest or fees.

PSLF (Public Service Loan Forgiveness)

A federal program that forgives remaining Direct Loan balances after 120 qualifying monthly payments while working full-time for a government or non-profit employer.

R

Refinancing

Taking out a new private loan to pay off one or more existing student loans, often to get a lower interest rate. Federal refinancing doesn't exist; refinancing federal loans with a private lender mean…Read more

S

SAI (Student Aid Index)

The number calculated from your FAFSA that colleges use to determine your eligibility for need-based financial aid. Replaced the EFC in 2024. Can range from –$1,500 to 999,999.

SAVE Plan

Saving on a Valuable Education — a federal income-driven repayment plan that replaced REPAYE. Caps payments at 5–10% of discretionary income and forgives balances after 10–25 years.

Scholarship

Free money for education that does not need to be repaid, typically awarded based on academic merit, talent, identity, or field of study.

Subsidized Loan

A federal student loan where the government pays the interest while you're in school at least half-time, during the grace period, and during deferment. Only available to undergrads with financial need…Read more

T

Title IV

The section of the Higher Education Act that authorizes federal student aid programs including Pell Grants, federal loans, and work-study.

U

Unsubsidized Loan

A federal student loan where interest accrues from the day funds are disbursed, regardless of enrollment status. Available to all eligible students regardless of financial need.

V

Verification

A process where a college checks the accuracy of FAFSA information by requesting additional documentation such as tax transcripts.

W

Work-Study

A federal program that provides part-time employment opportunities for students with financial need to help pay for education expenses.