Glossary

Academic Period: The period of time from the start date to the end of a school year. In some cases, it may be limited to a semester or term within a school year.

Accrued Interest: Interest that is accumulated to be paid in installments at a later time, usually when the principal becomes due, rather than being paid on a regular schedule from the time the loan is made. Accrued interest may be compounded or simple.

Adjusted Gross Income: Income less all tax deductions.

Amortization: The gradual reduction of a loan debt by periodic installment payments of principal and interest.

Assets: Savings and checking accounts, home and business value, stocks and bonds, other real estate, and trust funds, for example. For student aid need analysis purposes, automobiles are not considered assets.

Balloon Payment: The last payment of a loan that is much larger than the preceding payments. When balloon payments occur, frequently the borrower cannot afford to pay the balance, necessitating the negotiation of another loan to pay off the first one. If there are to be balloon payments, this should be clearly stated in the loan contract.

Bankruptcy : A legal action in which a person who is unable to meet financial obligations is declared bankrupt by a court decree. Under the Federal Bankruptcy Law, this person's property (savings and home, for example) becomes liable for administration by the court to satisfy creditors.

Base Year Income: Income for the calendar year immediately preceding the academic year for which financial assistance is being requested.

Borrower: Any person who obtains funds from a lender through extension of credit for a period of time. The said borrower signs a promissory note as evidence of the indebtedness.

Cancellation: Unlike regular consumer loans, the balance of some student loans may be canceled upon the death or disability of the borrower. Each such loan has its own cancellation stipulations.

Capitalizing Interest: Having interest payments added to the principal amount borrowed rather than paying them as they become due. This increases the principal and thereby adds significantly to the monthly payment during the repayment period.

Collateral: Something of value pledged as security for a loan. Banks do not require collateral for all loans. Most student loans do not require collateral.

Compounded Interest: Interest that is computed and added to the principal to arrive at a new balance. If the promissory note indicates that the interest will be compounded, the lender will assess interest at stated intervals. The first time this is done, the interest rate will be computed on the original principal. The sum of this first interest amount and the original principal becomes the new amount on which the next interest assessment is made. Given the same rate of interest and the same original principal for the same length of time, a borrower will pay back more if compounded interest is charged.

Cosigner: A second creditworthy party who is required to sign a promissory note for a loan with a borrower who has no collateral or credit history or who has bad credit. By signing, this party guarantees that the loan will be repaid if the borrower defaults.

Cost of Attendance: The total amount it will cost a student to go to school. It is usually expressed as a yearly figure. The cost of attendance includes tuition and fees, housing and food, books and supplies, travel, personal expenses, and may include child care, costs related to disability and special health care needs, and the cost to purchase or lease a computer.

Credit Bureau: An agency that compiles and distributes credit and personal information to creditors. Such information may include payment habits, number of credit accounts, balance of accounts, and length and place of employment. You have the right to examine your credit file, to explain problems, and to correct information. There is usually a fee to request a credit report, but there is no charge if you have been denied credit because of information in the file.

Debt: Something owed; an obligation or liability to pay someone else.

Debtor: One who owes something to another.

Default: Failure to meet financial obligations at the maturity of contractual agreements or failure to make loan payments at stipulated times. Defaults are recorded on the borrower’s permanent credit record and can result in litigation.

Deferment: A specified and limited period of time during which payments of principal and interest need not be made. In some instances, deferments can be granted for residency training, further study, or economic hardship. Deferments are not automatic and must be applied for.

Deferred Interest: Interest payments that are delayed with approval of the lender. For example, interest may be deferred while a borrower is in school as at least a half-time student. When the borrower graduates, the interest payment obligation resumes.

Delinquent: When a payment is more that 30 days late, generally the borrower is delinquent and remains delinquent until payments are back on schedule or other arrangements have been made.

Demonstrated Need: Student cost of attendance budget as established by the school less family contribution and other available resources.

Direct Lending: Student loans originated by the federal government as opposed to private lenders and whose terms and conditions are, for the most part, the same as federally-guaranteed student loans secured from private banks.

Disadvantaged Background: An individual from a disadvantaged background is one who (A) comes from an environment that has inhibited the individual from obtaining the knowledge, skill, and abilities required to enroll in and graduate from a health professions school or (B) comes from a family with an annual income below a level based on low income thresholds published by the U.S. Bureau of Census, which vary according to family size and which are adjusted annually for changes in the Consumer Price Index.

Disbursement Date: The date the loan check is issued by the lender.

Disclosure Statement: A document that lists details of the repayment agreement, including where and when installments will be owed, how large these installments will be, interest terms, additional finance charges, types of credit insurance available or required, and other information relevant to the loan. This must be presented to the borrower by the lender at the time the promissory note is signed and the loan contract negotiated.

Eligible Non-Citizen: Non-citizens eligible to receive federal financial aid are: (1) U.S. nationals (e.g., natives of American Samoa) and (2) U.S. permanent residents who have an I-151, I-551, or I-551C (Alien Registration Receipt Card). Also eligible are students who have an Arrival-Departure Record (I-94) from the U.S. Immigration and Naturalization Service (INS) showing one of the following designations: (1) Refugee; (2) Asylum granted; (3) Indefinite Parole or Humanitarian Parole; (4) Cuban-Haitian Entrant, Status Pending; or (5) Conditional Entrant (valid only if issued before April 1, 1980).

Entrance and Exit Counseling or Interview: The entrance counseling session or interview occurs before the school makes the first loan disbursement. The exit counseling session or interview occurs at graduation or withdrawal for school. Both sessions are required and will provide important information about student loans, including interest rates, loan fees, yearly and total maximum amounts that may be borrowed, maximum repayment periods, repayment options, grace and deferment periods, forbearance provisions, and the definition and consequences of default.

Expected Family Contribution: The amount of money that the student and the student’s family will be expected to contribute to the cost of education as determined by need analysis.

Federal Methodology: Federal Methodology is the federally prescribed system of need analysis written into law by Congress as part of the Higher Education Amendments of 1992. Federal Methodology became effective in 1995 and applies to all need-based federal financial aid programs.

Fellowship: A program beyond residency which provides sufficient financial support to allow for at least six months of full-time study or training.

Financial Aid Package: The total amount of financial aid a student receives. Federal and non-federal aid such as loans, scholarships, grants, and/or work-study are combined in a package to help meet the student's financial need.

Financial Aid Transcript: This is a record, maintained by each school you attend, of the student aid you received while in school.

Fixed Interest: Rate of interest which does not change during the life of the loan, is determined at the time the loan is negotiated, and is stated in the disclosure statement and the promissory note.

Forbearance: A special arrangement whereby a lender may delay principal and/or interest payments to relieve a borrower's financial hardship during the repayment period.

Grace Period: The time during which loan payments are postponed and the borrower incurs no loss, penalty, or further obligation. Some loans enter repayment immediately following the borrower's graduation. Others have a grace period so that repayment does not begin until several months after graduation. Grace periods are automatic and require no application to the lender.

Graduated Payment: A payment schedule allowing for various monthly payment amounts over the life of a loan based on periodic appraisal of income or passage of time.

Gross Income: Total salary or income before deductions.

Guarantee Agency: The organization that administers the Federal Stafford Student Loan Program in your state. The federal government sets loan limits and interest rates, but each state is free to set its own additional loan limits within federal guidelines.

Holder: An eligible lender or approved secondary market that owns a loan.

Income Sensitive Repayment Plan: Repayments that change with a borrower's income so that payments fluctuate as income rises and falls. Payments are based on a debt-to-income ratio.

Independent Student : By law, any graduate and professional student will be considered independent when determining eligibility for financial aid through programs of the U.S. Department of Education. For processing of Federal Stafford and Federal Direct Loans, no parental data is required on the Free Application for Federal Student Aid (FAFSA). Other scholarships and loan programs, however, may require parental data, even if the student is independent.

Insurance Fee: A fee charged for the use of borrowed money, computed as a percentage of the principal. The amount charged may be based on the borrower's year in school and the grace period.

Interest: The price paid or fee charged for the use of borrowed money, computed as a percentage of the principal borrowed for a given time period. It may be tax deductible for the borrower.

Legal Rate of Interest: The maximum rate of interest permitted by the laws of the state having jurisdiction over the loan transaction.

Lender: One who provides money temporarily on the condition that the amount borrowed will be returned, normally with interest.

Liability: Something for which one is liable. An obligation or debt.

Loan Consolidation: A refinancing program for certain student loans that combines these loans with new terms over an extended period of time.

Master Promissory Note: The Master Promissory Note (MPN) enables a student to sign a promissory note only once during enrollment at a particular school. This one note will allow the student to continue to borrow each year up to the aggregate amount as long as enrollment is continuous. Signing the MPN is a promise to repay student loans in accord with the specified terms and conditions. The MPN also includes important language about rights and responsibilities as a student loan borrower.

Maturity Date: The date upon which a promissory note becomes due and payable.

Maximum Loan Limits: The total amount for which a borrower is eligible under a particular loan program, usually expressed as annual and cumulative or aggregate limits.

Need Analysis: The computation of expected student and family contributions to the cost of education and consequent need for financial assistance. It is based on an analysis of detailed financial information about the income (and sometimes assets) of the student, and the student’s spouse, parents, and guardians.

Net Income: Income less all deductions, such as social security payments, taxes (federal, state and local), health and life insurance payments, and retirement benefits.

Origination Fee: Fee charged by a lender to process a loan. When charged, it is deducted from the principal.

Payout Note: Conversion of interim note or notes to payout status. At this point, a borrower begins to repay the principal with interest according to a repayment schedule negotiated prior to the issuance of the payout note.

Primary Care: The practice of medicine in the specialties of family medicine, general internal medicine, and general pediatrics. The definition may be expanded to include other specialties, such as psychiatry and obstetrics/gynecology, for specific purposes.

Prime Rate: The interest rate that banks charge their best business customers.

Principal: The face value of the loan or the amount upon which interest is charged.

Promissory Note: A legally binding contract between a lender and a borrower which includes all the terms and conditions of a loan and is signed by both parties at the time the loan is made. Promissory notes should be signed for every loan negotiated.

Recordation: The act by which all loans and contracts are recorded locally or federally as standing legal obligations.

Repayment Schedule: The repayment schedule states the terms of loan repayment. It is a plan which indicates the total principal and interest due, a monthly payment amount, and the number of payments required to pay the loan in full. It also shows the interest rate for the loan, the schedule for changes in the interest rate for variable rate loans, the due date for the first payment, and the frequency of payments.

Residency: A graduate medical education program approved and accredited by the Accreditation Council on Graduate Medical Education (ACGME).

Satisfactory Academic Progress: To be eligible to receive federal student aid, you must meet your school's written standards of satisfactory academic progress.

Secondary Market: A bank or banking organization that specializes in buying student loans. Loans are sold in order to obtain funds to make more student loans. If your lender sells your loan to a secondary market, you will be notified and will then repay the secondary market. When this occurs, the secondary market replaces your original lender. Sallie Mae is the largest secondary market.

Selective Service Registration: This requirement generally applies to males who were born on or after January 1, 1960, are at least 18 years old, are citizens or eligible non-citizens, and are not currently on active duty in the U.S. Armed Forces.

Servicer: A company that is hired by the lender or secondary market and that specializes in student loan billing, student loan payment collection, and processing of deferments. Your student loan accounts may be assigned to one or more of these servicers.

Simple Interest: Interest calculated on the original principal only.

Simplified Needs Test: The simplified needs test is a variant of Federal Methodology. A dependent student qualifies for the simplified needs test if neither the parent nor the student filed or will file an IRS Form 1040 but filed or will file a 1040A or 1040EZ, and the base year parents' adjusted gross income is $49,999 or less. In the case of independent students, if the student or student's spouse did not or will not file an IRS 1040 but filed or will file a 1040A or 1040EZ and the sum of the base year student's and spouse's adjusted gross income is $49,999 or less, the student qualifies.

Statement of Educational Purpose: You must sign this statement in order to receive federal student aid. By signing it, you agree to use your student aid only for educationally-related expenses.

Statement of Registration Status: If you are required to register with the Selective Service, you must sign a statement indicating you have done so before you can receive any federal student aid. This requirement applies to males who were born on or after January 1, 1960, are at least 18, are citizens or permanent residents, and are not currently serving in the Armed Forces.

Student Expense Budget: An estimate of the student's total educational expenses for the year, including tuition and fees, room and board, books and supplies, transportation, and incidentals.

T-Bill or Treasury Bill: Short-term federal debt obligations backed by the full faith of the U.S. government. The rate is established at a weekly auction. The interest rates of some student loans are tied to these obligations.

Unsubsidized Loan: A loan on which interest is not paid by the federal government during the in-school, grace, deferment, or repayment periods. The borrower is responsible for the payment of all interest on Unsubsidized Loans.

Variable Interest: Rates of interest that are tied to a certain index and that change periodically as the index changes.

Verification: The process used to check the accuracy of the information that a student gives when applying for federal student aid. Not all applicants will be selected for verification.