Glossary

There can be many unfamiliar terms associated with financial aid and student loans. Below are some of the most common you may encounter as you search for funding solutions, and definitions to help you better understand them.

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College

529 Plan: A tax-advantaged savings plan designed to encourage saving for future education costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions.
Award Letter: A document issued by a school’s financial aid office that explains the total amount of financial aid a student is eligible to receive.
Cost of Attendance (COA): The total amount it will cost a student to go to school, usually expressed as a yearly figure. It includes tuition and fees, room and board, allowances for books and supplies, transportation, and personal and incidental expenses.
Coverdell Education Savings Account (ESA): A tax-advantaged trust or custodial account in the U.S. designed to encourage savings to cover future education expenses (elementary, secondary, or college), such as tuition, books, and uniforms.
Expected Family Contribution (EFC): An estimate of the parents’ and/or student’s ability to contribute to post-secondary education expenses. This term is being replaced by “Student Aid Index (SAI).”
Financial Need: The difference between the cost of attendance (COA) at a school and your Expected Family Contribution (EFC). This number is used by schools to calculate how much financial aid you are eligible to receive.
Grace Period: A set period of time after you graduate, leave school, or drop below half-time enrollment before you must begin repayment on your loan.
Scholarship: Financial aid awarded to students based on their academic or other achievements to help pay for education expenses. Scholarships do not need to be repaid.
Student Aid Index (SAI): Previously known as EFC. An estimate of the parents’ and/or student’s ability to contribute to post-secondary education expenses.
Student Loan: A type of loan designed to help students pay for post-secondary education and associated fees, such as tuition, books, supplies, and living expenses.
Work-Study: A type of financial aid that allows students to work part-time, often on campus, to earn money towards their education expenses.

General Finance

Accrue: To accumulate over time. In the context of loans, interest accrues over the duration of the loan.
Annual Percentage Rate (APR): The annual rate charged for borrowing or earned through an investment, expressed as a percentage that represents the actual yearly cost of funds over the term of a loan.Asset: Anything of monetary value owned by an individual or institution.
Automatic Bill Pay: A money transfer scheduled on a predetermined date to pay a recurring bill.
Balance: The amount of money in a financial repository, such as a checking or savings account, at any given moment.
Bankruptcy: A legal procedure for dealing with debt problems of individuals and businesses.
Credit Score: A numerical expression based on a level analysis of a person’s credit files, representing the creditworthiness of an individual.
Credit Union: A not-for-profit financial cooperative whose members can borrow from pooled deposits at low interest rates.
Direct Deposit: An electronic deposit of a payment directly from the payer to your account, often used by employers for paychecks.
Financial Literacy Programs: Programs designed to provide education about money management, including topics like saving, investing, and credit.
Interest: When you borrow money, interest is the cost of borrowing that money and it’s paid to the lender. When you save or invest money, interest is the money you earn as a reward for saving or investing.
Interest Rate: This refers to the amount of interest you either earn or owe, expressed as a percentage of the total amount of money saved, invested, or borrowed.
Principal: The initial amount of money borrowed in a loan or put into an investment, not including interest or fees.

Loans

Collateral: Something pledged as security for repayment of a loan, to be forfeited in the event of loan default.
Default: Failure to make required repayments on a debt.
Deferment: A period during which repayment of the principal and interest of your loan is temporarily delayed.
Home Equity Loan: A type of loan where the borrower uses the equity of his or her home as collateral. It is also known as a second mortgage.
Home Loan/Mortgage: A loan secured by real property, typically a residential property. The borrower agrees to pay the loan back over a set period with a predetermined interest rate.
Loan: Money that individuals or businesses borrow from banks or other sources, which they then pay back with interest over a set period.
Loan Servicer: A company that collects payments, responds to customer service inquiries, and performs other administrative tasks associated with maintaining a loan on behalf of a lender.
Personal Loan: A loan that can be used for any personal expenses, such as medical bills, debt consolidation, or major purchases. These are typically unsecured, meaning they’re not backed by collateral.
Refinance Loan: A new loan taken out to pay off the original loan, often done to get a lower interest rate, switch from an adjustable rate to a fixed rate, or to extract equity from a property.
Repayment: The act of paying back money previously borrowed from a lender, typically done in periodic installments that include part principal plus interest.
Secured Loan: A loan in which the borrower pledges some asset (e.g., a car or house) as collateral.
Unsecured Loan: A loan that is issued and supported only by the borrower’s creditworthiness, rather than by any type of collateral.