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GLOSSARY OF FINANCIAL TERMS
GENERAL TERMS
Adjusted Gross Income (AGI): Your or your family's wages, salaries, interest, dividends, etc., minus certain deductions from income as reported on a federal income tax return.
Adverse Credit History: A summary of your financial strength, including your history of paying bills and your ability to repay future loans. To qualify for a PLUS loan, you cannot have an adverse credit history. Your credit history may be considered adverse if you are experiencing any of the following credit conditions:
- Bankruptcy discharge within the past five years.
- Voluntary surrender of personal property to avoid repossession within the last five years.
- Repossession of collateral within the last five years.
- Foreclosure proceedings started.
- Foreclosure within the last five years.
- Conveying your real property that is subject to a mortgage (by deed) to your lender to avoid foreclosure (deed in lieu of foreclosure).
- Accounts currently 90 days or more delinquent.
- Unpaid collection accounts.
- Charge-offs/write-offs of federal student loans.
- Wage garnishment within the last five years.
- Defaulting on a loan, even if the claim has been paid.
- Lease or contract terminated by default.
- County/state/federal tax lien within the past five years.
Award Amount: Amount of aid a school expects to pay a student based on the student’s current grant and loan eligibility, enrollment, Expected Family Contribution (EFC), and the school's cost of attendance.
Award Letter: An award letter from a school states the type and amount of financial aid the school is willing to provide the student, if s/he accepts admission and registers as a full-time student.
Award Year: School year for which financial aid is used to fund a student’s education. Generally, this is the 12-month period that begins on July 1 of one year and ends on June 30 of the following year.
Capitalization: The addition of unpaid interest to the principal balance of a loan. When the interest is not paid as it accrues during periods of in-school status, the grace period, deferment, or forbearance, your lender may capitalize the interest. This increases the outstanding principal amount due on the loan and may cause your monthly payment amount to increase. Interest is then charged on that higher principal balance, increasing the overall cost of the loan.
Cost of Attending College (COA): This is the total cost of going to college, including tuition, room and board, books, transportation, fees, and personal expenses.
Default: Failure to repay a loan according to the terms agreed to in the promissory note. For most federal student loans, you will default if you have not made a payment in more than 270 days. You may experience serious legal consequences if you default.
Deferment: A postponement of payment on a loan that is allowed under certain conditions and during which interest does not accrue on Direct Subsidized Loans, Subsidized Federal Stafford Loans, and Federal Perkins Loans. All other federal student loans that are deferred will continue to accrue interest. Any unpaid interest that accrued during the deferment period may be added to the principal balance (capitalized) of the loan(s).
Delinquent: A loan is delinquent when loan payments are not received by the due dates. A loan remains delinquent until the borrower makes up the missed payment(s) through payment, deferment, or forbearance. If the borrower is unable to make payments, he or she should contact his or her loan servicer to discuss options to keep the loan in good standing.
Demonstrated Need: This is the difference between the cost of attending a college and your expected family contribution.
Disbursed Amount: The quantity of federal student aid funds disbursed (paid out) to a student by the school. Generally, federal student aid funds are made in two or more disbursements.
Expected Family Contribution (EFC): The EFC is the amount of money you and your family could be expected to pay for one year of college costs, based on the data gathered from the FAFSA and determined by a federal formula applied to that data. This figure often differs from the actual amount you will be required to pay.
FAFSA: This is the Free Application for Federal Student Aid, a federal form required as the application from all students who wish to apply for need-based financial aid, including grants, loans and work-study awards.
Fees: These are charges that cover costs not associated with the student's course load, such as costs of some athletic activities, clubs, and special events.
Financial Aid Package: The total amount of financial aid a student receives. Federal and nonfederal aid—such as grants, loans, or work-study—are combined in a "package" to help meet the student's need. Using available resources to give each student the best possible package of aid is one of the major responsibilities of a school's financial aid administrator.
Financial Need: The difference between the cost of attendance (COA) at a school and your Expected Family Contribution (EFC). While COA varies from school to school, your EFC does not change based on the school you attend.
Forbearance: A period during which your monthly loan payments are temporarily suspended or reduced. Your lender may grant you a forbearance if you are willing but unable to make loan payments due to certain types of financial hardships. During forbearance, principal payments are postponed but interest continues to accrue. Unpaid interest that accrues during the forbearance will be added to the principal balance (capitalized) of your loan(s), increasing the total amount you owe.
Grace Period: A period of time after borrowers graduate, leave school, or drop below half-time enrollment where they are not required to make payments on certain federal student loans. Some federal student loans will accrue interest during the grace period, and if the interest is unpaid, it will be added to the principal balance of the loan when the repayment period begins.
Loan Servicer: A company that collects payments, responds to customer service inquiries, and performs other administrative tasks associated with maintaining a federal student loan on behalf of a lender. If you're unsure of who your federal student loan servicer is, you can look it up inMy Federal Student Aid.
Master Promissory Note: A binding legal document that you must sign when you get a federal student loan. The MPN can be used to make one or more loans for one or more academic years (up to 10 years). It lists the terms and conditions under which you agree to repay the loan and explains your rights and responsibilities as a borrower. It’s important to read and save your MPN because you’ll need to refer to it later when you begin repaying your loan or at other times when you need information about provisions of the loan, such as deferments or forbearances.
Merit-based: Based on a student's skill or ability. Example: A merit-based scholarship might be awarded based on a student's high grades.
Need-Blind Admission: Full consideration of an applicant and his or her application without regard to the individual’s need for financial aid.
Net Price: An estimate of the actual cost that a student and his family need to pay in a given year to cover education expenses for the student to attend a particular school. Net price is determined by taking the institution's cost of attendance and subtracting any grants and scholarships for which the student may be eligible.
Tuition: This is the amount of money that colleges charge for classroom and other instruction and use of some facilities such as libraries.
SCHOLARSHIPS
A scholarship is a sum of money given to a student for the purposes of paying at least part of the cost of college. Scholarships can be awarded to students based on students' academic achievements or on many other factors. Scholarships do not need to be repaid.
Academic Scholarships: Academic scholarships are based upon academic achievement as reflected in your college application.
Athletic Scholarships: These scholarships are based upon athletic ability and your prospective college’s departmental needs. Division I, II, and III college athletic scholarships are very difficult to receive because of fierce competition. Click here for more information on NCAA eligibility for all Divisions.
Corporate Scholarships: These scholarships are awarded to help employees and their families, show community support and to encourage future job seekers toward a career in the company’s area of business. Corporate scholarships are much less competitive than other types of scholarships because of geography, employment and the relatively low number of applicants. Start with your family's employers, check out the newspaper and see which companies in your area are awarding scholarships, and then contact these businesses to find out how to apply.
Private Organization Scholarships: These scholarship opportunities number in the millions. Places of worship, labor unions, school districts, chambers of commerce and philanthropic organizations (Rotarians, Lions, Masons, Daughters of the American Revolution, etc.) are all excellent sources for college scholarships. Sit down with your family and make a scholarship search list of potential sources (you may be amazed at what’s right in your own backyard).
LOANS
A loan is a type of financial aid that is available to students and to the parents of students. An education loan must be repaid. In many cases, however, payments do not begin until the student finishes school. For a simple description and comparison of various government loans, click here.
Direct Consolidation Loan: A federal loan made by the U.S. Department of Education that allows you to combine one or more federal student loans into one new loan. As a result of consolidation, you will have to make only one payment each month on your federal loans, and the amount of time you have to repay your loan will be extended.
Direct Subsidized Loans: These loans are need-based loans with interest paid by the government. Your school determines the amount you can borrow, which may not exceed your financial need. The U.S. Department of Education pays the interest on a Direct Subsidized Loan while you’re enrolled in school at least half-time, for the first six months after you leave school (referred to as a grace period), and during a period of deferment (a postponement of loan payments). NOTE: This means that you remain liable for repayment of the loan and for all interest accrued post graduation, post grace period and post deferment period.
Direct Unsubsidized Loans: These loans are available to undergraduate and graduate students; there is no requirement to demonstrate financial need. Each school determines the amount you can borrow based on your cost of attendance and other financial aid you receive. You are responsible for paying the interest on a Direct Unsubsidized Loan during all periods. NOTE: If you choose not to pay the interest while you are in school and during grace periods and deferment or forbearance periods, your interest will accrue (accumulate) and be capitalized (that is, your interest will be added to the principal amount of your loan).
Federal Perkins Loans: These loans are similar to Stafford loans in that no interest accrues while you are in college. The interest rate is lower, and the repayment grace period is longer than that of a Stafford subsidized loan. The need-based standards are more stringent for the Perkins loan and funds are awarded based on the FAFSA Student Aid Report.
Institutional Loan: Any student loan administered by the college or university using the institution’s funds as the source of funding. Perkins Loans may also be considered institutional loans.
PLUS Loan: The Federal Parent Loan for Undergraduate Students (PLUS) allows parents, regardless of income, to borrow up to the total cost of education minus the amount of any other financial aid awarded by the institution or the government.
Stafford Loan: This is a federal student loan for college students used to supplement personal and family resources, scholarships, grants, and work-study. A Stafford Loan may be subsidized or unsubsidized, depending on whether it is need-based.
William Ford Direct Loan Program: The William Ford Direct Loan Program is administered by the U.S. Department of Education to provide loans that help students pay for their postsecondary education.
GRANTS
Grants, like loans and most scholarships, are based on financial need. A grant may be provided by federal or state governments, an institution, a foundation, or some other nonprofit funding source and does not have to be repaid.
Federal Pell Grant: This grant is a form of financial aid provided by the Federal government to students whose FAFSA indicates a high level of financial need.
Institutional Grant: This is a need-based grant provided by an institution and offered to students whose families are unable to pay the full cost of college. Institutional grants do not have to be repaid.
Merit-Based Grant: A form of gift aid (does not require repayment) based upon your grade point average, academic excellence and extracurricular involvement with some attention to your financial need.
Need-Based Grant: This grant is offered, as a part of the financial aid package, when a student and his or her family are unable to pay the full cost of attending an institution. The grant does not need to be repaid.
Teacher Education Assistance for College and Higher Education (TEACH) Grant: A federal grant that provides up to $4,000 per year to students who agree to teach for four years at an elementary school, secondary school, or educational service agency that serves students from low-income families and to meet other requirements. If the service obligation is not met, the grant is converted to a Direct Unsubsidized Loan.
WORK-STUDY PROGRAMS
Most colleges offer work-study programs. They allow students to work part time during the school year as part of their financial aid package. The jobs are usually on campus and the money earned is used to pay for tuition or other college charges. NOTE: qualifying for a work study program does not guarantee that you'll be able to enroll in one. For example, my daughter qualified for a $1600+ work study in her freshman year. She applied for multiple on-campus posted positions but did not get one due to the fact that while there were 800 qualifying student applicants, there were only 200 available positions. Additionally, schools tend to award work study opportunities to upperclassmen, first. This makes it that much more unlikely that qualifying freshmen and sophomores will actually be able to make use of their awarded work study amount.
Sources:
http://www.whatkidscando.org
https://studentaid.ed.gov/sa/glossary
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