When looking at your student loan information, it can sometimes seem like all of the documents are in a different language. In many cases, financial aid, such as student loans, does come with its own set of vocabulary words.
Here are 10 terms to help you understand your student loans better:
- Annual Percentage Rate (APR) – The yearly rate of interest applied to your total loan amount.
- Consolidation – Combining one or more loans to have one monthly payment. In some cases, this increases the length of the repayment period.
- Default – Failure to repay your student loan according to the terms of the loan agreement. This has a negative effect on your credit score.
- Deferment – Postponing student loan payments for a set amount of time. You must apply to your loan servicer and must meet certain conditions, such as being enrolled in postsecondary or graduate school, disability, unemployment, or active military duty.If you have a subsidized loan, the federal government will pay the interest during this period. For unsubsidized loans, you are responsible for any interest that adds up by making payments either during the deferment period or adding it to your loan balance when the deferment period ends (known as capitalization).
- Forbearance – Postponing your student loan payments or making lower payments for a temporary amount of time. Your loan servicer will determine if you’re eligible for forbearances at their discretion, such as during times of financial hardship or illness; however, there are cases where forbearance must be granted.
- Grace Period – This is the amount of time you have before you need to make your first student loan payment. Usually, this period is six months after graduation, or you drop below half-time enrollment, but it can vary depending on the type of loan you have and your servicer.
- Interest Capitalization – Unpaid interest that adds up (or accrues) to your principal loan balance. This typically happens if you need to temporarily postpone or delay payments, such as deferment or forbearance. The interest will be added to your principal balance after the period ends.
- Interest Rate – The amount charged to a borrower allowing them use of the assets, in this case, the student loan. This is typically a percentage of the principal payment.
- Student Loan – A form of financial aid that is used to pay for a student’s education. It is available to students and their parents and must be repaid.
- Subsidized Loan – A type of student loan where the government pays the interest during approved deferment periods, such as while you’re in school. These loans are awarded based on financial need.
As you can see, there’s a lot of vocabulary surrounding student loans. These 10 key terms to know will get you started. However, if you’re unsure about the exact terms of your student loan agreement, it’s important to talk to your servicer.