Glossary of Key Loan Terms

ACH (Automated Clearing house): A payment system that allows for the electronic transfer of funds. If used by the borrower, lending organizations often offer to provide a borrower's benefit.
APR (Annual Percentage Rate): Annual Percentage Rate is the rate being charged to borrowers as the cost of the funds being borrowed over the term/length of the loan. This value is expressed as an annual/yearly percentage that reflects the actual yearly cost of the loan and includes any fees or additional costs related to the loan transaction. It is calculated by taking a monthly rate and multiplying it by 12 to get an annual percentage rate. (i.e.. 2% per month X 12 months = 24% APR).
Collective Bargaining: Negotiations between lenders to reduce interest rates or principal rates on loans.
Consolidation: Combining federal student loans into one repayment plan through one lender in order to receive a lower month payment and a longer repayment period.
Deferment: A period of time when a borrower is allowed to postpone student loan repayment (under certain applicable conditions) without cost or penalty. The interest on the unsubsidized loans continues to accrue during deferment at the borrower's expense.
Direct Lending: A loan scenario where a financing company provides a direct financing arrangement to the borrower without the presence of intermediaries.
Federal Loan: This type of loan encompasses Stafford, Grad PLUS and other federally sponsored loans that are guaranteed by the government.
Forbearance: A period of time during which a borrower is allowed to temporarily cease making payments or reduce the amount of his or her payments. The borrower is responsible for the interest that accrues on the loan during the forbearance period.
Grad PLUS: A loan that is federally sponsored and can be utilized by students pursuant to a graduate-level education. A student may borrow up to the entire cost of attendance for that graduate year but is limited based upon the amount of federal loans and financial aid they already have. For example, if a student's cost per year is assessed at $20,000 and the student already has $14,000 in the form of financial aid. The student can only qualify for up to $6,000, which is the difference between cost per year versus any outstanding current aid. In order to qualify for this type of loan, a student must be enrolled at least part-time in graduate program, be a national of the United States of America and have submitted a FAFSA form.
Guarantor: A state or private non-profit organization that agrees to reimburse the holder of a loan if the borrower, individual or organization does not honor the repayment obligation.
Interest Rate Reduction: Reducing the interest rate on the loan if payments are made on time over a certain period or if the borrower chooses to pay the interest and principal payments via ACH, which then in effect guarantees on-time payments. This is one of many forms of borrower benefits.
Legal Assurances: Legally assuring that all parties will honor the loan contract that was created and formally agreed upon at the beginning of the loan.
Lender: Person or organization that loans money to individuals or organizations.
LIBOR: This stands for London Interbank Offered Rate, which serves as a benchmark for most credit instruments that are offered by banks. It is also the rate banks use to buy and sell money between other banks. In many instances, lenders are observed to offer deals to borrowers at a percentage above LIBOR.
NSLDS (National Student Loan Data System): An online database that houses information pertinent to loans being made to students nationally across the United States.
Originator: The person or company that originates a loan.
Prime: Prime or Prime Rate refers to the interest rate that banks charge to their most creditworthy and stable clients. The rate is typically constant across all banks and does not adjust on a regular basis. However, anytime the rate does change, it is changed at the same time across all banking organizations.
Principal Reduction (Credit): After making a certain amount of timely payments, lenders can lower the rate being charged on the principal. This is one of many forms of borrower benefits.
Private Loan: A loan granted by a private organization such as a bank, credit union, or private loan service provider. This is also a credit-based loan. In no way are these loans federally-based and they are typically subject to the variable terms of the lending organization.
Servicer: A person or company that services a loan by maintain the loan and collecting the interest and principal payments.
School As Lender: In the event that the student is not able to ascertain any form of funding for collegiate education, a school has the voluntary ability to loan funds to the student.
Stafford Loan: There are two types of Stafford Loans: “subsidized” and “unsubsidized.”; A Subsidized Stafford loan is a long-term and needs-based loan, with a very low interest rate. The term “subsidized” means that the government will pay the interest on the loan while a student is in school or in a period where the student requests a grace period or deferment. Unsubsidized Stafford loans in comparison are long-term, non-need based, with a low interest rate. This type of loan is best for students who do not qualify for other types of financial aid, or who still need more money in addition to other forms of financial aid. Almost all household incomes qualify, and “unsubsidized” means that the interest on the loan is the responsibility of the buyer. Both of these can be used against the total cost of education, including room, board and other education related expenses.