Many or all companies we feature compensate us. Compensation and editorial research influence how products appear on a page. Student Loans Student Loan Terms Master List: 47 Key Terms Defined and Demystified Updated Apr 04, 2025 17-min read Expert Approved Expert Approved This article has been reviewed by a Certified Financial Planner™ for accuracy. Written by Melody Stampley, CEPF® Written by Melody Stampley, CEPF® Expertise: Writing, editing, budgeting, credit, loans, mortgages, auto insurance, giving, saving Learn more about Melody Stampley, CEPF® Reviewed by Erin Kinkade, CFP® Reviewed by Erin Kinkade, CFP® Expertise: Insurance planning, education planning, retirement planning, investment planning, military benefits, behavioral finance Erin Kinkade, CFP®, ChFC®, works as a financial planner at AAFMAA Wealth Management & Trust. Erin prepares comprehensive financial plans for military veterans and their families. Learn more about Erin Kinkade, CFP® Anyone considering or has already applied for student loans should check out this glossary of student loan terms, listed alphabetically. Our glossary will help you better understand how these loans work so you can feel confident about paying them off. Table of Contents 1. Academic year 2. Acceleration 3. Aggregate loan limit 4. Amortization 5. Annual percentage rate (APR) 6. Award offer or award letter 7. Borrower defense to repayment 8. Capitalization 9. Cosigner 10. Consolidation 11. Cost of attendance (COA) 12. Credit hour 13. Deferment 14. Default 15. Delinquency 16. Dependent 17. Direct PLUS Loan 18. Disbursement 19. Discharge 20. Exit counseling 21. FAFSA 22. Federal student loan 23. Financial aid package 24. Fixed interest rate 25. Forbearance 26. Forgiveness 27. Grace period 28. Grant 29. Income-driven repayment (IDR) plan 30. Independent 31. Interest 32. Interest rate 33. Lender 34. Loan servicer 35. Master promissory note (MPN) 36. Origination fee 37. Principal 38. Private student loan 39. Public Service Loan Forgiveness (PSLF) 40. Refinance 41. Satisfactory academic progress (SAP) 42. Scholarship 43. Student Aid Index (SAI) 44. Subsidized Loan 45. Unsubsidized Loan 46. Work-study 47. Variable interest rate 1. Academic year An academic year is one school year at an educational institution, such as a community college or four-year university. According to the Office for Federal Student Aid, the academic year is one of the following: One year (typically nine months in school) at the same institution Separate half-semesters at different institutions 2. Acceleration Acceleration occurs when your lender requires you to repay the balance of your student loans in full. The most common reasons for acceleration are: Using the funds to pay for non-education-related expenses Not attending classes after you receive the loans Lying so you can qualify for the loans Defaulting on your loans—in other words, falling behind on payments 3. Aggregate loan limit This limit refers to the maximum total amount of student loans you can receive. The Department of Education (ED) sets an aggregate limit for undergraduate and graduate school. If you’ve already received federal student loans for your undergraduate studies but are also applying for graduate student loans, it’s important to note that the aggregate includes the undergraduate loans. 4. Amortization In simplest terms, amortization is the process of paying down the balance of a loan over time. In monthly payments, a portion goes toward the principal (the original amount you owe) while the other goes toward the interest (the cost lenders charge for borrowing). 5. Annual percentage rate (APR) APR is the total cost of borrowing a loan over a year, expressed as a percentage. Unlike the interest rate, APR includes not only the loan’s interest but certain fees and costs, which can give you a clearer picture of the loan’s true expense. This standardized measure helps compare different loan offers more accurately. 6. Award offer or award letter If you fill out the Free Application for Federal Student Aid (FAFSA), your award letter will notify you how much aid you’re eligible for. It will include all the schools you added to the FAFSA and the types of aid you’re eligible for in addition to student loans. The letter can include grants and scholarships. To accept the offer and receive the financial aid, you’ll need to respond to the school you decide to attend. 7. Borrower defense to repayment For student borrowers who took out federal Direct Loans to attend an institution that misled them or was determined to practice misconduct, this is a legal way to be released from being required to repay the outstanding loans. However, you must meet certain criteria to be eligible. 8. Capitalization When the amount you owe on the original loan (or the principal) is added to your loan balance. Capitalization can be the result of not paying down the interest as it accrues. 9. Cosigner Someone you add to your loan application who acts as a second borrower. If a private student loan lender considers it risky to loan money to you, it might require you to add a creditworthy cosigner. Most federal student loans won’t require a cosigner. But if you want to apply for a Direct PLUS loan and you have a poor credit history, you may need an endorser, which is essentially the same as a cosigner. An endorser agrees to pay back your loan if you can’t. Lenders may consider a borrower risky if they don’t make enough income to repay the loan in a reasonable amount of time, have a low or nonexistent credit score, or have other debt obligations. So a cosigner agrees to pay back the loan if you, the primary borrower, don’t. 10. Consolidation Consolidation occurs when you combine multiple loans into a larger one in hopes of making the payments lower and, therefore, more manageable. This doesn’t necessarily lead to paying less over the life of the loan. You can consolidate your loans with a private lender, like SoFi, by refinancing, but federal student loan borrowers with multiple federal loans can consolidate into a federal Direct Consolidation Loan. 11. Cost of attendance (COA) COA is the total cost of attending school. This total usually accounts for the entire school program’s duration, which is about four academic years. The COA includes tuition, books and school supplies, food, transportation, and room and board or housing. 12. Credit hour A credit hour is the unit a student earns for attending a class. Typically, the credit hours for a course correlate with the amount of time you spend in the class each week. For example, if you attend one class three times a week for one hour each, this class would be worth three credit hours. 13. Deferment During deferment, you don’t need to make payments toward your student loans while in school. If you have federal student loans, you automatically qualify for deferment if you’re enrolled at least half-time at an institution eligible for federal student aid. Some private student loan lenders offer deferment, but the process to request it may vary. 14. Default A student loan is considered in default if it’s significantly past due. For many federal student loans, that means you are 270 days or more late on your payments. For others, including private student loans, this is often a shorter period. Private lenders determine their own default requirements. 15. Delinquency Your student loan is considered delinquent once you are late in making the regular or recurring payment. With federal student loans, you’re considered delinquent if you’re late by one day. Private student lenders may offer a grace period during which they will not consider your payment late, but this varies by lender. 16. Dependent Anyone other than a spouse who can be claimed on another taxpayer’s tax return is considered a dependent. As a dependent applying for federal student loans, your loan limits are lower than those of independent students. So you typically can’t borrow as much as you may need for your continuing education. One exception is if you have parents who aren’t eligible to take out a Direct PLUS loan. In this case, you may be able to apply for Direct Unsubsidized Loans. 17. Direct PLUS Loan PLUS Loans are federal student loans offered to parents or graduate students seeking additional funding for higher education. For parents, they’re called “Parent PLUS,” and for graduate students, they’re called “Grad PLUS.” You can borrow a Direct PLUS loan for up to the school’s cost of attendance, but any other financial aid you get will lower that amount. 18. Disbursement Disbursement refers to the payment you receive from a student loan servicer or lender. Most lenders send the disbursement directly to the school where you’re enrolled, and if funds are left over, the school will release them to you. Lenders or loan servicers might disburse funds once each semester you’re enrolled or once at the beginning of the school year. 19. Discharge Discharge refers to the decision the Department of Education makes to remove your responsibility for repaying any outstanding loans you have from attending an educational institution. Student borrowers are typically granted discharge due to the school’s misconduct in some form, such as guaranteeing a student a certain salary with the degree they pursue. 20. Exit counseling After graduation or dropping below half-time enrollment status, you must complete exit counseling. The Department of Education requires this 30-minute session, but some schools or programs may have their own requirements. Exit counseling aims to educate and prepare you for repaying your student loans. In exit counseling, you’ll review the best repayment plan for your specific situation or needs. 21. FAFSA FAFSA stands for Free Application for Federal Student Aid. You must complete the FAFSA each year to apply for federal student loans. 22. Federal student loan A student loan administered by the federal government. Through the Office for Federal Student Aid, the Department of Education funds federal student loans and is the biggest lender of student loans in the U.S. Direct Subsidized and Direct Unsubsidized Loans are the two main types of federal student loans, but ED also offers Direct Consolidated Loans and PLUS Loans for parents and graduate students. 23. Financial aid package A financial aid package is a combination of the different types of financial aid you can receive from an institution you’re considering attending, including student loans, grants, scholarships, and federal work-study. Your financial aid may come from a private, federal, or state institution or the school. 24. Fixed interest rate A fixed rate means the interest rate—the cost of taking out a student loan—will not change over the life of the loan. Fixed interest rates can help you budget more easily and save you from paying more over the life of the loan because your payments won’t change. 25. Forbearance With forbearance, you are not required to make payments toward your student loans. This may last for several months. For example, general forbearance for federal student loans can last up to 12 months. To be eligible, you may be required to prove financial hardship or other challenges. 26. Forgiveness Student loan forgiveness refers to canceling the amount you owe in federal student loans. This may mean the remaining balance or the original balance, depending on the circumstances. You may be eligible for student loan forgiveness if you are enrolled in an income-based repayment (IBR) plan. For instance, your remaining balance could be canceled after you make 120 consecutive payments. 27. Grace period Your grace period begins after you complete school or drop below half-time. It’s the time frame before you must begin repaying your student loans. Typically, the Department of Education and even private student loan lenders offer a six-month grace period before you must start making payments. The grace period for your loan is stated in the promissory note. 28. Grant A grant is free money you can use for education-related costs. Unlike a loan, you don’t need to pay it back. To qualify, you may need to meet certain requirements—for example, showing financial need. 29. Income-driven repayment (IDR) plan The federal IDR plan bases your student loan repayments on your income and family size, which you must update yearly. At the end of the repayment plan, your remaining balance may be forgiven. Typically, payments are based on a percentage of discretionary income (income after taxes and essentials). The current IDR plans include Saving on a Valuable Education (SAVE), Pay As You Earn (PAYE), Income-Based Repayment (IBR), and Income-Contigent Repayment (ICR). However, the SAVE plan is facing legal challenges, and it’s uncertain how forgiveness will work—or whether it will remain available—for new applicants. While online applications for SAVE are paused, you can still apply by mailing in a paper application. 30. Independent An independent student is married, a graduate student, or a veteran or military member. For the 2025 – 2026 academic school year, the Office for Federal Student Aid also considers anyone born in 2001 or earlier independent. As an independent student, you have higher federal student loan limits, which means you can borrow more money for your continued education. This may be especially helpful if you have other bills or responsibilities that make it tough to juggle paying for school. 31. Interest The cost of borrowing money. In the case of student loans, the interest is the amount the lender charges you over time, based on your loan balance. 32. Interest rate The interest rate is the percentage that determines the cost of borrowing money. Federal student loans start at a 6.53% fixed rate. Private student loan interest rates depend on your or your cosigner’s credit score and could be lower or much higher than federal student loans. Private loan rates can be fixed or variable. 33. Lender The institution that provides your student loan. This is the entity you owe for borrowing money to pay for your education. The term “lender” generally refers to companies offering private student loans. 34. Loan servicer A loan servicer is a company that manages your student loans, including handling payments, communicating with you, and performing administrative tasks. 35. Master promissory note (MPN) The master promissory note (MPN) is the document from your federal student loan servicer that details your responsibilities, rights, and repayment terms and conditions. Similarly, private student loan lenders may require you to sign a promissory note for each loan you receive. Once you sign a promissory note, you agree to pay your servicer or lender the money you borrowed plus the interest and fees you agreed to. 36. Origination fee The origination fee is a charge a lender or loan servicer assesses for processing your loan. It’s typically calculated as a percentage of the loan amount. For example, if the origination fee is 1.057% on federal student loans and you’re borrowing $100,000, the origination fee would be $1,057. So you—or the school—would receive $98,943 when your funds are disbursed. 37. Principal The principal is the original amount you owe. Once you begin making recurring payments, the typical student loan repayment schedule splits each payment into two parts—principal and interest. As long as you pay at least the interest each month, your loan balance will decrease over time. But if you’re not covering the interest, it can be added to your loan, making the total amount you owe even larger. 38. Private student loan A student loan from a private lender, such as a bank, credit union, or other financial institution. Any student loan not provided by the Department of Education—the federal government—is private. 39. Public Service Loan Forgiveness (PSLF) Public Service Loan Forgiveness (PSLF) is the program offered by ED to employees in public service at the federal, state, tribal, or local level or a nonprofit organization. Examples of eligible borrowers include teachers in certain districts, military members, and AmeriCorps. Those with student loans who fulfill the PSLF requirements may earn forgiveness and have their remaining balance canceled. Student loan forgiveness has been up in the air since the U.S. Court of Appeals took action in 2025, leaving many borrowers wondering what’s next. While the future is unclear, there are practical steps you can take. 40. Refinance When you refinance your student loans, you apply for a loan with a new lender offering better terms, such as lower interest rates, to lower your payments or pay less over the long term. By refinancing, the new lender will essentially pay off your current student loan, and you’ll start over with a new loan term. However, whether you’ll be better off after a refinance is not always clear-cut. Refinancing has several pros and cons you should consider. 41. Satisfactory academic progress (SAP) SAP is a term schools use to define a student’s academic standing and whether they meet the program’s requirements to continue in or graduate from the program. SAP requirements can vary across schools. 42. Scholarship Similar to a grant, a scholarship is money you can use toward your education, including tuition, books and supplies, or other related costs, without having to repay. Scholarships typically require students to meet certain criteria, such as a minimum GPA or financial need. To earn a scholarship, you may need to apply by a deadline and submit information about yourself, including an essay and letters of recommendation. You might also need to meet ongoing academic requirements. 43. Student Aid Index (SAI) The Student Aid Index (SAI) used to be known as the Expected Family Contribution (EFC). It’s a formula-based number—ranging from -1500 to 999999—that financial aid providers use to determine a student’s financial need. The lower the SAI, the more financial need a student has. For example, a student with -1500 is eligible for the maximum Pell Grant award. 44. Subsidized Loan A loan where the U.S. government pays interest while you’re in school at least half-time, during the grace period, and when your loan is in deferment. The Department of Education offers Direct Subsidized Loans to undergrads with financial need. 45. Unsubsidized Loan A loan where the U.S. government doesn’t pay interest. The Department of Education offers Direct Unsubsidized Loans to undergrad and grad students. They accrue interest once the loan is disbursed, meaning interest is added to your balance during school, the grace period, and deferment. 46. Work-study Work-study is a federal program through participating schools for enrolled full- or part-time undergrad, grad, and professional students with financial need. Work-study allows you to work part-time to help pay for your education. @thecollegefundingqueen Common fafsa mistakes! Click yes for “work study”! That’s federal money you can get but you put no! #Destinationdepop #collegetiktok #scholarship ♬ original sound – Abisola Ude 47. Variable interest rate A variable interest rate fluctuates over the life of the student loan. Sometimes, a student loan with a variable interest rate can save you money because your loan might start at lower rates at the beginning of your loan term. If rates stay low over the years, you may pay less over your loan term. But that’s not always the case. How the rate changes depends on the U.S. prime rate, the interest rate most lenders charge for loans. The prime rate is tied to the Federal Reserve changing the federal funds rate. Final word Now that you’ve brushed up on these common student loan terms, you can feel confident about how student loans work. Remember to research any financial aid you’re considering, whether federal or private. It’s one of the most important decisions you’ll make for your future. And it’s always a good sign if you know how to pay back what you borrow.