Loan Terminology


Adding accrued interest to the principal. The Department of Education may capitalize interest monthly, quarterly, semi-annually, annually or at repayment.

Credit Bureau

Agency that collects and distributes credit information to creditors. Student Loan default information appears on a credit report.


If a borrower's monthly payments are more than 180 days overdue, the borrower is in default. The borrower is still responsible for repayment of the principal and accrued interest, as well as collection costs.


A limited period of time to postpone repayment of student loans.


A loan payment that is more than 30 days late. If the borrower fails to fix the delinquency, the borrower will default.

Disclosure Statement

Statement of actual cost of a loan, including interest rate and any additional finance charges. Provided by the Department of Education or the Direct Loan Servicer.

Fixed Interest

Rate that does not change during the life of the loan.


Special arrangement between the borrower and the Department of Education (at their option), which allows borrower to temporarily stop making payments, obtain an extension for making payments, or make smaller payments than scheduled.

Grace Period

Six-month period from the day you graduate, withdraw or drop below half-time enrollment status to the beginning of the repayment period.

Guarantee Agency

The organization that administers the former Federal Family Education Loan Programs in your state. This agency guarantees repayment of a student loan if the borrower defaults. These still exist, but were more active prior to Direct Lending.

Interest Rate

A percentage of the principal that is charged for the use of the borrowed money.


Bank, savings and loan, credit union or other approved entity from which students received student loans prior to Direct Lending. Some lenders still provide private loans.

Origination Fee/Insurance Premium

Fees deducted from principal of loan by Federal Government as insurance against loan default.


The amount borrowed and the amount on which interest is charged.

Master Promissory Note

The legal document which lists conditions under which you are borrowing and the terms of repayment.

Repayment Schedule

A form provided by a lender which indicates the monthly payment amount, the date when payments are due, and the terms of the loan.

Secondary Market

A state or private agency that purchases older student loans from lenders. This is not as active since Direct Lending.


The company that provides services to students on behalf of a lender or secondary market or the Department of Education's Direct Lending program.

Variable Interest

Rate of interest that is tied to an index and changes periodically as the index changes.