A loan is a sum of money that is borrowed from a lender, typically a financial institution. A loan is usually paid back within agreed-upon repayment terms and with interest.
Consolidation: Combining multiple loans into one loan.
Default: Delinquency status after failing to repay a loan according to the terms of a promissory note.
Deferment: A temporary postponement of payments on a student loan.
Forbearance: A temporary reduction or postponement of payment amounts on a student loan.
Grace Period: Amount of time before repayment begins.
Interest: The charge to be paid for taking out a loan.
Lender: The person or company that lends money to a borrower.
Loan Servicer: A company hired by the lender to manage the borrower’s account by collecting and processing payments.
Principal: The original dollar amount lent.
Promissory Note: A signed legal document containing a written promise by one party to pay another party a stated sum at a specified date.
Refinancing: Trading an existing loan with a new loan, usually to find a lower interest rate or improved repayment terms.
Repayment Term: Amount of time which you can pay back your loan.
Loan Types Specific to Higher Education
Federal Direct Subsidized Student Loans
Federal Direct Subsidized Loans are educational loans available to undergraduate students and are based on financial need. The Department of Education subsidizes interest while students are enrolled at least half-time and during grace and deferment periods.
Federal Direct Unsubsidized Student Loans
Federal Direct Unsubsidized Loans are educational loans available to undergraduate and graduate students and are not based on financial need. Students are responsible for interest charges throughout the entire loan.
Federal Direct Parent Plus and Graduate Plus Loans
Federal PLUS Loans are loans for eligible graduates and parents of dependent undergraduate students.
Private Student Loans
Students who need funding after all other sources of aid have been exhausted may consider private student loans. Many financial institutions offer private or alternative student loan options. Contrasting to Federal Student Loans, private loans may be subject to a credit review and lender terms and conditions, competitive interest rates, fees, and repayment options. Most private loans will require a co-signer.
Other Federal Loan Information
Borrowers must complete Entrance Loan Counseling before receiving the first disbursement of their loan. The session will provide helpful tips and tools to help develop a budget for managing educational expenses and educate students on loan responsibilities.
Students must complete Exit Loan Counseling before leaving school to make sure they understand their rights and responsibilities as loan borrowers. Students will be provided information about loan repayment.
The National Student Loan Data System (NSLDS)
Students can monitor all Federal Student Loans received and outstanding balances to be repaid on the Studentaid.gov website. This website provides information on the amounts of loan funds received, loan statuses, outstanding balances, assigned loan servicers, and disbursements.
Other Loan types
There are many different types of loans other than educational loans, four different types of loans are shown below.
- Personal Loans - Loans that have shorter repayment terms. They can be used for almost anything, e.g., relocating, emergencies, medical bills, and vacations. They are either secured-backed by collateral or unsecured-requires your signature.
- Auto Loans- Loans used to purchase a vehicle. They are secure loans, as the vehicle itself is the collateral.
- Mortgage Loans- Loans that help you purchase a home. They are secure loans as the home itself is usually the collateral.
- Home Equity Loans- Loans that are often referred to as a second mortgage. You can only get a home equity loan if you have equity in your home. The portion of your home value that you don't owe the bank is considered equity.