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Financial Literacy


Glossary of Financial Terms

The following are general terms related to student loans and some are specific to your account serviced by MOHELA. They are adapted from the 2013 Common Manual.

Accrued Interest: Interest that has already accumulated, but has not yet been paid by the borrower.

Administrative Forbearance: A temporary suspension of, a reduction of, or an extension of time for making principal and/or interest payments on a loan. The servicer or lender grant the forbearance and notify the borrower or endorser. The forbearance does not require a written request from the borrower before it is granted.

Annual Loan Limit: The maximum loan amount a student may borrow for each academic year of study under the Federal Stafford Loan Program.

Anticipated Completion (Graduation) Date: The date on which a student is expected to complete an academic program. This date is provided by a school official when certifying the borrower’s loan, and in subsequent enrollment status updates.

Applicable Interest Rate: The maximum annual interest rate (under the Higher Education Act) that a lender may charge on a loan. Sometimes referred to as the Statutory Interest Rate.

Auto Debit: Applying and being approved by MOHELA to have automatic payments electronically debited from your bank account may qualify you for a 0.25% interest rate reduction on your federally-owned loans. Setting up automatic payments saves you time and ensures your payments will be made on-time each month. Learn more.

Borrower: An individual to whom a loan is made. The borrower is responsible for repaying a loan, as agreed to in the loan’s terms and conditions signed in the loan’s Master Promissory Note (MPN).

Capitalization: An increase in the principal balance of a loan that occurs when unpaid accrued interest is added to the outstanding principal balance of the loan. Subsequent interest accrues on the new total principal balance, which includes any capitalized interest, resulting in a higher principal balance and additional finance charges throughout your time in repayment. It may also cause your monthly payment amount to increase.

Certification: The act of attesting that something is true or meets a certain standard. For example, the school certifies the borrower’s eligibility for a loan and, if applicable, interest benefits. The borrower completes an application, promissory note, or deferment form, thereby certifying that certain eligibility criteria have been met.

Certification Date: The date the school certifies the borrower’s eligibility for a loan and, if applicable, interest benefits. The borrower completes an application, promissory note, or deferment form, thereby certifying that certain eligibility criteria have been met.

Claim: The process by which the lender (or lender’s servicer) requests reimbursement from the guarantor for its losses on a Federal Stafford, SLS, PLUS, or Consolidation loan due to the borrower’s default or eligibility for loan discharge or forgiveness.

Cohort Default Rate: A 3-year cohort default rate is the percentage of a school's borrowers who enter repayment on certain Federal Family Education Loan (FFEL) Program or William D. Ford Federal Direct Loan (Direct Loan) Program loans during a particular federal fiscal year (FY), October 1 to September 30, and default or meet other specified conditions prior to the end of the second following fiscal year. The Department calculates this rate annually to determine the default experience of students who attended a particular school during a particular period of time.

Consolidation: A Direct Consolidation Loan allows you to combine multiple federal student loans into one loan. The result is a single monthly payment instead of multiple payments. Learn more.

Consumer Credit Reporting Agencies: National agencies to which MOHELA reports late payments including Equifax, Experian, Transunion.

Cosigner: A signer of a promissory note who is secondarily liable for a loan obligation. This term is no longer used in federal regulations.

Cost of Attendance (COA): An estimate of the student’s educational expenses for the loan period.

Default: The failure of a borrower (or endorser or comaker, if any) to repay a loan according to the terms the borrower agreed to in the Master Promissory Note (MPN). Default on a federal loan occurs after 270 consecutive days of non-payment on an account.

Deferment: A period of time during repayment in which the borrower, upon meeting certain conditions, is not required to make payments of loan principal.

Delinquency: A period that begins on the day after the due date of a payment when the borrower fails to make the equivalent of one full payment.

Direct Loan: Eligible students and parents can borrow loans as part of the William D. Ford Federal Direct Loan Program (FDLP) from the U.S. Department of Education. Direct Loans include subsidized and unsubsidized Stafford loans, PLUS loans to parents of dependent students, PLUS Loans to graduate and professional students, and Consolidation Loans.

Disability: A medically determined condition that renders a person unable to work and earn money, or, in some cases, to attend school. A borrower is considered totally and permanently disabled if this condition is expected to continue for a long or indefinite period of time, or to result in death.

Disbursement: The transfer of loan proceeds by a lender to a borrower, a school or an escrow agent. For a Consolidation loan, disbursement is the transfer of borrower loan proceeds from the consolidating lender to the current holder of the loan being consolidated.

Disbursement Date: For a loan disbursed by check or draft, the date the check or draft is issued. For a loan disbursed by electronic funds transfer (EFT) or wire transfer, the date the funds are transferred from the lender to the school or escrow agent.

Discharge: The release of a borrower from all or a portion of his or her loan obligation, as applicable, due to bankruptcy, school closure, death, total and permanent disability, an unpaid refund by the school, or the school’s false certification of a FFELP loan; or false certification due to a crime of identity theft.

Economic Hardship: A period during which the borrower is experiencing financial difficulty in making his or her student loan payments due to a qualifying condition such as not earning the minimum wage for a family of two, or monthly student loan payments that are equal to or greater than 20 percent of the borrower’s monthly income.

Electronic Signature: Information in electronic format that is attached to or logically associated with an electronic record and used by a person with the intent to sign the electronic record.

Endorser: A signer of a promissory note who is secondarily liable for a loan obligation, i.e., who agrees to pay if the borrower does not. A lender may require a PLUS borrower with adverse credit to obtain a credit-worthy endorser in order to receive the loan.

Entrance Counseling (or Entrance Interview): Counseling provided to a student about debt and accumulated indebtedness. Counseling is required both before the student receives the first disbursement of the student’s first loan—often referred to as entrance counseling, and when the student is scheduled to complete an academic program—commonly referred to as exit counseling.

Estimated Financial Assistance (EFA): The school’s estimate of the amount of financial assistance from federal, state, institutional, or other sources that a student (or parent on behalf of a student) will receive for a period of enrollment. This may include veterans’ and national service awards and benefits (except when determining eligibility for a subsidized Stafford Loan), scholarships, grants, financial need-based employment, or loans. EFA does not include Federal Perkins Loans or Federal Work-Study funds that the student has declined or certain loans used to replace the expected family contribution.

Exit Counseling (or Exit Interview): See Entrance Counseling.

Expected Family Contribution (EFC): The amount a student and the student’s spouse or family are expected to pay toward the student’s cost of attendance. The Federal Need Analysis Methodology must be used to calculate the EFC.

Expedited-Standard: The repayment schedule available to a borrower who chooses to leave the Income-Based Repayment (IBR) plan. The payment amount is calculated on the basis of both of the following:


Extended Repayment Plan: A repayment plan that may provide for standard or graduated monthly payments over a period not to exceed 25 years. Learn more.

Family Size: For purposes of Income Driven Repayment Plans, family size includes you, your spouse, and your children (including unborn children who will be born during the year for which you certify your family size), if the children will receive more than half their support from you. It includes other people only if they live with you now, they receive more than half their support from you now, and they will continue to receive this support from you for the year that you certify your family size. Support includes money, gifts, loans, housing, food, clothes, car, medical and dental care, and payment of college costs.

Federal Family Education Loan Program (FFELP): Loan programs authorized by Title IV, part B of the Higher Education Act of 1965, as amended, that include subsidized and unsubsidized Stafford loans, PLUS loans to parents of dependent students, PLUS Loans to graduate and professional students, and Consolidation Loans. These loan programs are funded by lenders, guaranteed by guarantors, and reinsured by the federal government.

Financial Aid Package: The total amount of financial aid that a school awards a student. Federal and non federal aid such as loans, grants or work-study are combined into a “package” to help meet the student’s cost of attendance. Using available resources to give each student the best possible aid package is one of the major responsibilities of a school’s financial aid administrator.

Forbearance: An authorized period of time during which payments are reduced or suspended. The borrower is liable for the interest that accrues on the loan during the forbearance period. Some forbearances are entitlements for eligible borrowers; others are granted at the discretion of the lender.

Forgiveness: The release of a borrower or any comaker, as applicable, from all or a portion of his or her loan obligation as a result of public serviced provided by the borrower or comaker.

Free Application for Federal Student Aid (FAFSA®): The form the student must complete to apply for federal Title IV financial assistance, including Stafford loans. The student must include financial information on the student’s household so that the expected family contribution can be calculated.

Grace Period: A 6-month period during which payments of principal on Stafford Loans are not required. The grace period begins the day after the student drops below half-time status, leaves school or graduates and ends the day before the repayment period begins.

Graduated Repayment Plan: A repayment plan under which the borrower’s monthly payment is scheduled to change (usually by increasing in two or more increments) during the course of the repayment period. The graduated repayment schedule cannot exceed 10 years (or 25 years for borrowers eligible for an extended repayment schedule), excluding in-school, grace, deferment, or forbearance periods. Learn more.

Guarantor (or Guaranty Agency): A state or private non profit organization that has an agreement with the U.S. Secretary of Education to administer a loan guarantee program under the Higher Education Act.

Income-Based Repayment (IBR) Plan: A repayment plan for FFELP and Direct Loans under which the monthly payment amount is generally set at 15% of the borrower’s discretionary income and is adjusted annually. The borrower must demonstrate need with a partial financial hardship based on the borrower’s total federal student loan debt, adjusted gross income and family size. Learn more.

Income-Contingent Repayment (ICR) Plan: A repayment for some Direct Loans under which the monthly payment amount is generally set at 10% of the borrower’s discretionary income and is adjusted annually. The borrower must demonstrate need with a partial financial hardship based on the borrower’s total federal student loan debt, adjusted gross income and family size. Learn more.

Income-Driven Repayment (IDR) Plan: A repayment plan that ties your monthly payment to your income. Includes the Income-Based Repayment (IBR) Plan, Pay As You Earn Repayment Plan, Income-Contingent Repayment (ICR) Plan and Income-Sensitive Repayment Plan. Learn more.

Income-Sensitive Repayment Plan: A repayment plan for FFELP loans under which the borrower’s monthly payment amount is adjusted annually, based solely on the borrower’s expected total monthly gross income received from employment and other sources during the course of the repayment period. Learn more.

In-School Period: The time during which a student is enrolled on at least a half-time basis at a participating school.

Interest: The charge made to a borrower for use of a lender’s money.

Interest Notice: Borrowers in deferment, forbearance or grace receive an interest notice rather than a bill. It differs from a bill because you’re not required to make a payment. However, making payments may substantially decrease your total interest cost.

Loan Transfer: Any action that results in a change of the system used to monitor or conduct collection activities on the loan, such as a change in servicer.

Master Promissory Note (MPN): A common form that allows a borrower to receive loans for either a single academic year or multiple academic years.

National Student Loan Data System (NSLDS): A database comprised of information from guarantors, schools, lenders, and the Department of Education which contains information on Title IV aid received by students. NSLDS

Origination Fee: A fee charged to offset the cost of interest, special allowance, and reinsurance payments by the federal government on a FFELP loan. This fee, if charged to the borrower, may be subtracted from the borrower’s loan proceeds.

Out-of-School Date: The date the student graduates or drops below half-time status.

Paid Ahead: A type of payment in which money is paid ahead of time, in anticipation of repayment or other future adjustment.

Paperless Correspondence: Receive correspondence electronically by enrolling in Go Paperless.

Parent PLUS Loan: A PLUS loan made to the parent of a dependent undergraduate student.

Partial Financial Hardship (PFH): A borrower has a partial financial hardship if the annual payment amount on all eligible FFELP and Direct Loans exceeds 15% of the difference between the borrower’s adjusted gross income and 150% of the U.S. Department of Health and Human Services poverty guideline applicable to the borrower’s family size and state of residence. Eligible FFELP and Direct Loans include the outstanding balances n all loans except a defaulted loan, a FFELP or Direct parent PLUS loan, and a FFELP or Direct Consolidation loan that repaid a FFELP or Direct parent PLUS loan.

Pay As You Earn: A repayment plan with monthly payments that are limited to 10 percent of your discretionary income divided by 12. Discretionary income for this plan is the difference between your adjusted gross income and 150 percent of the poverty guideline amount for your state of residence and family size. To initially qualify for the Pay As You Earn plan and to continue to make income-based payments under this plan, you must have a partial financial hardship and be a new borrower.

Pell Grant: A federal need-based grant.

Permanent-Standard: A repayment schedule available to a borrower under the income-based repayment plan. The payment amount is calculated on the basis of both of the following:


Poverty Guideline Amount: The figure for your state and family size from the poverty guidelines published annually by the U.S. Department of Health and Human Services (HHS). The HHS poverty guidelines are used for purposes such as determining eligibility for certain federal benefit programs. If you are not a resident of a state identified in the poverty guidelines, your poverty guideline amount is the amount used for the 48 contiguous states.

Prepayment: A payment received when the borrower is not required to make either principal or interest payments; when a borrower is required to make interest payments, but previously authorized the lender to capitalize accruing interest; or when the borrower makes a payment that is greater than the amount of the borrower’s regular installment or the amount due.

Principal Balance: The outstanding amount of the loan, on which the lender charges interest. As the loan is repaid, a portion of each payment is used to satisfy interest that has accrued, and the remainder of the payment is used to reduce the outstanding principal balance.

Public Service Loan Forgiveness: A program intended to encourage individuals to enter and continue in full-time public service employment by forgiving the remaining balance of their Direct Loan(s) after they satisfy the public service and loan payment requirements of the program. Learn more.

Recall (of a claim): A lender request that the guarantor return a default claim that has already been filed before claim reimbursement because the claim no longer qualifies for default.

Repayment Period: The period during which payments of principal and interest are required. The repayment period follows any applicable in-school or grace period and excludes any period of authorized deferment or forbearance.

Repayment Schedule: The legal addendum to the Promissory Note stating the terms of loan repayment and fulfilling disclosure requirements. The Repayment Schedule is a plan that indicates the total principal and interest due, an installment amount, and the number of installments required to pay the loan in full. The Repayment Schedule also contains the interest rate for the loan(s) included on the schedule, the due date of the first and subsequent installments, and the frequency of installments.

Repayment Start Date: The date the repayment period begins. For Stafford loans, repayment begins on the day following the last day of the grace period. For PLUS and SLS loans, repayment begins on the date the loan is fully disbursed. For Consolidation loans, repayment begins on the date the loan is disbursed.

Repurchase (of a Claim): The lender’s purchase back from the guarantor of a defaulted loan for which the lender has already been reimbursed by the guarantor.

Rolling Delinquency: A delinquency that occurs whenever the delinquent status of a loan is increased or reduced but not completely eliminated as result of a payment, the reversal of a payment, a deferment or forbearance, or the receipt of a new out-of-school date.

Servicer (or Third-Party Servicer): An entity that enters into a contract with a program participant to administer any aspect of its participation in a Title IV program.

Servicemember Civil Relief Act (SCRA) Interest Rate Cap: Under the SCRA, interest on federal student loans obtained prior to your military service is limited to 6% during periods of active duty. The interest rate limitation also applies to any private education loans you may have.

Skip Tracing: Diligent efforts to locate a borrower’s telephone number or address when such information is unknown.

Social Security Number (SSN): The 9-digit number assigned to the borrower by the Social Security Administration. The SSN is used as an identifier for tracking the borrower’s loan account(s), skip tracing, and reporting to the Department. A borrower must have an SSN in order to apply for a FFELP loan.

Standard Repayment Schedule: A repayment schedule under which the borrower pays the same amount for each installment payment throughout the entire repayment period or pays an amount that is adjusted to reflect annual changes in the loan’s variable interest rate. The standard repayment schedule cannot exceed 10 years, excluding in-school, grace, deferment, and forbearance periods.

Standard-Standard: A repayment schedule available to a borrower under the Income-Based Repayment plan. The payment amount is calculated on the basis of both of the following:


Subsidized Loan: A loan eligible for interest benefits paid by the federal government. The federal government pays the interest that accrues on subsidized loans during the student’s in-school, grace, authorized deferment, and (if applicable) post-deferment grace periods, if the loan meets certain eligibility requirements.

Teacher Loan Forgiveness: The Teacher Loan Forgiveness Program is intended to encourage individuals to enter and continue in the teaching profession. Under this program, if you teach full-time for five complete and consecutive academic years in certain elementary and secondary schools and educational service agencies that serve low-income families, and meet other qualifications, you may be eligible for forgiveness of up to a combined total of $17,500 on your Direct Subsidized and Unsubsidized Loans and your Subsidized and Unsubsidized Federal Stafford Loans. Learn more.

Title IV: A section of the Higher Education Act of 1965, as amended, that authorizes federal loan, work, and grant education financial assistance programs.

Totally and Permanently Disabled: The condition of an individual who is unable to work and earn money due to an injury or illness that is expected to continue indefinitely or result in death.

Transfer: For purposes of defining due diligence time frames, a transfer is any action (such as the sale of a loan) that results in a change of the system used to monitor or conduct collection activities on the loan.

Unsubsidized Loan: A non-need-based loan such as an unsubsidized Federal Stafford loan or a Federal PLUS loan. The borrower is responsible for paying the interest on an unsubsidized loan during in-school, grace, and deferment periods, in addition to repayment periods.

Variable Interest Rate: An interest rate that changes, usually annually, according to prescribed methods.

Verbal Request: A request that is made orally, as opposed to in writing.

Verification: A school’s procedure for checking the accuracy of information reported by the student on the FAFSA®. Verification may include requesting a copy of the tax returns filed by the student and, if applicable, the student’s parents.

Withdrawal Date: The date the student withdraws, as determined by the school. The requirements that the school must follow for determining the student’s withdrawal date depend upon whether the school is required to take attendance.