Top 24 Terms to Know About Your Student Loan

Hurrah, hurrah! Welcome to the Class of 2016! You’ve been accepted to the University of Pennsylvania!

I remember receiving this email nearly 6 years ago, and the 20.5 million current students across the US have seen something along these lines, too. Excited with the endless future that lays ahead of us as we venture into the unknown of college we quickly learned that we needed to come up with the money to afford our new diploma that we will end up working tirelessly to obtain. So, if you’re not fortunate to have family pay for your education and your aid will not cover the remainder of your tuition, you’ll likely need to find money in the private market. So what all do we need to know that pertains to this money? Well, if you’re deciding to finance your education with a traditional student loan, here are the 24 terms (loans are complicating!) to make sure you understand before you sign on the dotted line.

1. Principal: The amount initially borrowed by the borrower.
2. Interest Accrual: As your loans have an expected monthly payment, if the borrower is not able to make their full monthly payment, then interest will build up on the loan. This means that on the next payment, a larger portion of the borrower’s payment will go towards paying off the interest that has gathered (accrued) rather than their principal. In fact, you must pay off all accrued interest before resuming paying down principal on the loan.
3. Grace period: A grace period is the amount of time you have before your first payment is officially due. While most federal student loans come with a six-month grace period, the actual amount of time you may receive can vary greatly depending on the type of loan you have. There is a common misconception that the grace period starts when you graduate, but it actually starts when you drop below half-time enrollment.
4. Interest-Only Payments: You may be offered this opportunity during school. Making interest-only payments will ensure that no interest accrues during college and you won’t end up paying back an even greater amount after you graduate.
5. Amortization Schedule: This shows the breakdown of your monthly payments. At the beginning, a larger portion of your payment goes towards making interest payments. However, as time progresses, your payments begin to encompass larger principal payments. In fact, you should try to make extra payments early to begin paying down your principal the ASAP.
6. Annual Percentage Rate (APR): This is the annual rate that is charged for borrowing, expressed as an annual percentage. An interest rate alone doesn’t reflect fees or other charges connected to your loan, but the APR does. For student loans, the most common of these additional costs that are associated is the origination fee, which some lenders charge for making a loan.
7. Subsidized loan: Subsidized Loans are loans for undergraduate students with financial need, as determined by your cost of attendance minus expected family contribution and other financial aid (such as grants or scholarships). Subsidized Loans do not accrue interest while you are in school at least half-time or during deferment periods.
8. Origination: The initial offer of capital to the borrower. There is usually a fee associated with the offering of capital due to the underwriting process and transfer of funds required to lend money.
9. Loan Servicer: A servicer is the organization that sends you student loan bills and collects your payments. They are not your lender. Your lender, which is the federal government for all federal education loans issued since July 2010, hired them to provide you with customer service. They’re also not the same as collection agencies. If you have questions about your loans or need to submit loan paperwork, you will likely need to contact your servicer.
10. Fixed Rate: This means your APR will never increase over time. You always know what your interest rate will be.
11. Variable Rate: This means your APR will fluctuate along with a reference rate (such as LIBOR or the prime rate). These rates normally start lower than a fixed rate, but over time, will climb and surpass the payments.
12. Forgiveness: There are ways to have your student loan debt erased, which is known as loan forgiveness. Your home state may have programs to forgive your loans, likely depending on your profession. At the federal level, the main options for achieving this is through Teacher Loan Forgiveness and Public Service Loan Forgiveness.
13. Cosigner: The act of signing for another person’s debt which involves a legal obligation made by the cosigner to make payment on the other person’s debt should that person default. Having a cosigner is way for individuals with a low income or poor/limited credit history to obtain financing.
14. Promissory note: This is your loan’s contract. If you need answers about your repayment options or rights as a borrower, look in your promissory note.
15. Cost of Attendance: A figure provided by colleges and/or college financial offices that estimates the total costs of attending that particular school for a period of one year. Included in the estimate are all reasonable expenses such as tuition, room and board, books and supplies, personal expenses and transportation.
16. Delinquency/Default: Loans enter delinquency if they’re past ​due by one payment. Federal student loans default after 270 days of delinquency. Neither is good and both will damage your credit score. As a result of defaulting on your loans, the government can garnish your wages and tax refunds or Social Security payments.
17. Deferment/Forbearance: ​These are your options to pause your loan payments temporarily. Deferment is a borrower’s right and if you meet certain eligibility criteria, then you cannot be denied a deferment. In addition, for subsidized loans, you’re not responsible for the interest that accrues during an approved deferment period. On the other hand, forbearance is granted at your lender’s discretion. Interest accrues on all loans during forbearance, so the total amount you owe always increases. If you need to postpone your payments, be sure to ask for deferment first and then resort to forbearance. Definitely avoid delinquency/default.
18. Extended Repayment: Similar to a standard repayment plan, but it allows for a length of 12–30 years, depending on the total amount borrowed.
19. Rehabilitation: Should your loan enter default, rehabilitation is one option you have to return it to good standing. You can also consolidate out of default or pay the debt in full. In rehabilitation, you work with your loan holder and make nine (9) on-time, voluntary payments in an agreed-upon amount. After that, your loan goes to a new holder and a new servicer and the default line gets removed from your credit history. You can rehab a loan only once, so it’s important to stay on track once this process is complete.
20. Public Service Loan Forgiveness: The Public Service Loan Forgiveness (PSLF) Program forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.
21. Unsubsidized Loan: The federal government does not make interest payments while the student is in college. It is the student’s responsibility to make ALL payments.
22. Capitalization: Capitalization is when your loan holder adds unpaid interest to the principal balance of your loan. The capitalization then increases the overall amount you owe. Capitalization happens whenever you enter repayment. For federal student loans, capitalization happens at the end of a grace, deferment or forbearance period. It can also occur when you consolidate a loan or default.
23. Consolidation: Consolidation is a repayment option that replaces a borrower’s existing debt with a single, new loan. Consolidation can make repayment easier by cutting down the number of loans borrowers have to deal with. However, consolidation loans can also cost you any special benefits your previous loans had, such as Perkins loan forgiveness. Make sure to keep this in mind before determining whether or not to consolidate.
24. Income-Driven Repayment: An income-driven repayment plan sets your monthly student loan payment at an amount that is intended to be affordable based on your income and family size. There are four main programs offered by the federal government.

• Revised Pay As You Earn Repayment Plan (REPAYE Plan)
• Pay As You Earn Repayment Plan (PAYE Plan)
• Income-Based Repayment Plan (IBR Plan)
• Income-Contingent Repayment Plan (ICR Plan)

Financing for college can be a nerve wracking decision. There are many new terms you may have never heard of before reading this and you’re worried about making a 10+ year decision! There are millions of students across the country in the same situation as you, so don’t be afraid to talk about it with your college’s financial aid department.

If the onus of taking on debt is too frightening then feel free to check out the income share agreements that you can qualify for with Paytronage. We provide a more flexible, less stress-inducing alternative to college financing!

Originally published at medium.com.