GlossaryAcademic Year: The measure of the time in which academic work is to be accomplished by a student each year as defined by the school. For instance, at a school that uses terms, the academic year must contain at least 30 weeks of instructional time in which a full-time student is expected to complete at least 24 semester or trimester hours, 36-quarter hours, or 900 clock hours.
Accrued Interest: The interest on a student loan that begins to accrue (accumulate) after a student completes school. This interest is charged on the principal (dollar) amount of the loan.
Administrative Cost Allowance (ACA): Monies the Federal government may pay a guaranty agency as reimbursement for administrative expenses incurred in the operation of its program. Agencies apply annually and are paid quarterly for ACA.
Alternative Repayment: A repayment plan the Servicing Center provides to a borrower who adequately demonstrates that the terms and conditions of the four FDLP repayment plans do not accommodate the borrower's exceptional circumstances.
Bankruptcy: Legal proceedings that relieve borrowers from their creditors.
Booked Disbursements: A booked disbursement occurs when funds for a booked loan become disbursed. At this time, the booked disbursement date becomes an actual disbursement date.
Booked Loan: An FDLP loan becomes booked when a promissory note, origination record, and anticipated disbursement date exists in the loan origination system.
Borrower: Person responsible for repaying a loan who has signed and agreed to the terms in the promissory note.
Capitalizing Interest: Adding accumulated interest to the loan principal rather than having the borrower make monthly interest payments. Capitalizing interest increases the principal amount of the loan and, therefore, the total cost of the loan.
Cash Reserve Ratio: The amount of cash reserves that an agency holds divided by the original principal of outstanding loans.
Cash Reserves: An agency's cumulative sources of funds minus an agency's cumulative uses of funds to pay.
Cohort: Borrowers who enter repayment in a given fiscal year
Cohort Default Rates: The rate calculated by dividing the number of borrowers who defaulted at the end of the specified time interval, by the total number of borrowers in the cohort. A cohort of student borrowers who entered repayment in the same year may be tracked over a specific time interval to determine the percentage of students who default on their loans. (A cohort default rate may also be based on the total dollar amount loaned to students. In this case, the rate would be expressed as the percentage of dollars borrowed that are defaulted.)
Collection Costs: Costs the government incurs when collecting a delinquent or defaulted loan. These costs are charged to the borrower.
Collections: Amounts collected by guaranty agencies or the Federal government from borrowers after default claims are paid to lenders. FY86-FY96 figures reported in the Data Book include collections by the Internal Revenue Service through offset of Federal income tax refunds.
Commitment (Direct Loans): For the FDLP, a commitment occurs when the Department receives and accepts an origination record and a signed promissory note from the borrower.
Commitment (FFEL program): In the FFEL program, a commitment occurs when the guaranty agency issues a commitment to the lender for a loan. Consolidation Loans: Loans under the FDLP or FFEL in grace or repayment status are eligible for consolidation. Consolidation occurs when a borrower with multiple loans requests that all of his or her loans be consolidated into one loan. Repayment begins 60 days after discharge of prior loans; certain deferments are authorized. Interest is the greater of nine percent or weighted average of underlying loans.
Constant Dollars: Dollars adjusted using a price index to eliminate inflationary factors. This adjustment facilitates direct comparison over time.
Cross-Program Participation: Student participation in more than one FFEL program component. Students may borrow under both Stafford Subsidized and Stafford Unsubsidized programs, and their parents may borrow under the Parent Loan for Undergraduate Students (PLUS) program. However, a student may not receive an FDLP loan and an FFELP loan for the same period of enrollment.
Default: Failure to repay a loan in accordance with the terms of the promissory note.
Dependent Student: A student that is financially dependent upon a parent or legal guardian or a student who does not meet certain criteria for being classified as independent (see Independent Student).
Direct Consolidation Loan: One or more federal education loans combined into a single loan under the FDLP. Only one monthly payment is made to the U.S. Department of Education.
Direct Loan Servicing Center: The place where FDLP borrowers send their loan payments. The Servicing Center can answer questions a student might have about an FDLP loan.
Disbursement: When loan proceeds are paid by the school to the student or parent borrower.
Discharge: The release of borrowers from their obligations to repay their FDLP loans. Borrowers must meet certain requirements to be eligible for discharges.
Disclosure Statement: Statement of the actual cost of a loan, including the interest costs and the loan fee.
ECMC: Educational Credit Management Corporation is a guaranty agency, which guarantees loans for many lenders in various states.
Exit Counseling: A group or individual session during which FDLP borrowers who are leaving school or dropping below half-time enrollment receive important information about their repayment obligations and update information about themselves.
Expected Family Contribution (EFC): The amount that a family can be expected to contribute toward college costs.
Extended Repayment Plan: A plan that requires the borrower to pay at least $50 a month and allows up to 30 years to repay, depending on the amount borrowed.
Federal Direct Loan Program (FDLP): The William D. Ford Federal Direct Loan Program, also referred to as the Direct Loan Program, is a federal program that was authorized under by the Student Loan Reform Act of 1993. FDLP provides low-interest loans to students. These loans are originated by participating institutions with capital provided directly through the U.S. Department of Education, which is the sole lender. Several loan programs exist under the umbrella of FDLP. These loans are the Stafford Subsidized loan program, the Stafford Unsubsidized loan program, the Parent Loan for Undergraduate Students (PLUS), and Consolidation loans.
Federal Family Education Loan (FFEL) program: The Federal Family Education Loan FFEL program is formerly known as Guaranteed Student Loans (GSL). Funds for the FFEL program are provided primarily by commercial lenders. Loans are guaranteed by individual state or private non-profit guaranty agencies and reinsured by the federal government. Several loan programs exist under the umbrella of FFEL. These loans are the Stafford Subsidized program, the Stafford Unsubsidized program, the Parent Loans for Undergraduate Students (PLUS), the Supplemental Loan for Students (SLS), and Consolidation loans.
Federal Insured Student Loan Program (FISLP): The Higher Education Act of 1965 authorized the Federal Insured Student Loan Program, a program that provided loan guarantees to state and private nonprofit agencies. Changes in legislation gradually phased out this program and no new FISLP loan guarantees have been provided since July 14, 1984.
FFEL: See Federal Family Education Loan Program.
FDLP: See Federal Direct Loan Program.
Fiscal Year (FY): The annual accounting year for the federal government begins on October 1 and ends the following September 30. The fiscal year is designated by the calendar year in which it ends. For example, the FY96 begins on October 1, 1995 and ends on September 30, 1996. [NOTE: Prior to FY76, the fiscal year began on July 1 and ended on the following June 30.]
Forbearance: An arrangement to postpone or reduce a borrower's monthly payment amount for a limited and specified period, or to extend the repayment period. The borrower is charged interest during forbearance.
Foreign Borrowers: Borrowers who attend eligible foreign institutions.
GA Reimbursement: Monies that guaranty agencies return to the government for collections on defaulted loans.
Grace Period: A six-month period before the first payment must be made on a Stafford Subsidized or Stafford Unsubsidized loan. The grace period starts the day after a borrower ceases to be enrolled at least half time. During the grace period on a FDLP Unsubsidized loan, accumulating interest must be paid or it will be capitalized.
Graduated Repayment Plan: A plan that allows monthly payment amounts to start out at one level and then increase every two years during the repayment period. Borrowers have up to 30 years to repay, depending on the amount they borrowed. The minimum payment must cover interest that accumulates monthly and must be at least half of the payment that would be required under the Standard Repayment Plan. The maximum amount may not be more than 1-1/2 times the payment that would be required under the Standard Repayment Plan.
Guarantee Agency (GA): A State or private nonprofit agency that has an agreement with the Secretary to administer the Guaranteed Student Loan programs. The agency insures lenders against losses due to a borrower's default. Also called "guarantor" or "guaranty agency."
Half-time Student: A student who is not a full-time student, who is enrolled in a school that participates in the FFEL program or the FDLP, and who is carrying an academic workload that is considered at least one-half the workload of a full-time student (as determined by the school).
HEAF: Higher Education Assistance Foundation is a guaranty agency, which guarantees loans for many lenders in various states.
Income Contingent Repayment Plan: A plan that allows the monthly payment amount to vary with the borrower's income. A borrower has up to 25 years to repay.
Independent Student: A student who meets one of the following criteria: the student is 24 years or older, a graduate or professional student, married, orphaned or a ward of the court, veteran of the armed services, or has documents describing circumstances of independence.
In-School Period: Under the Stafford Subsidized loan program, the period during which a borrower pursues his or her studies as at least a half-time student at a participating school. This period begins with the date of disbursement and ends with the beginning of the grace period. During the in-school period, the Federal government pays lenders interest benefits and special allowance on behalf of eligible borrowers.
Institution Default Rates: Each institution's cohort default rate calculated annually by the Department of Education. The cohort consists of the borrowers who enter repayment in a given fiscal year. The rate is calculated by dividing the number of borrowers who default by the end of the following fiscal year by the total number of borrowers in the cohort.
Insurance Premium: The amount charged a lender by a guarantee agency for insuring the lender against losses on GSLP loans. The lender, however, may pass the cost of the insurance premium to the borrower.
Interest: A loan expense charged by the lender and paid by the borrower for the use of borrowed money. The expense is calculated as a percentage of the principal amount (loan amount) borrowed.
Interest Benefits: Under the FFEL Stafford loan program, Federal payments to lenders on behalf of eligible borrowers for interest which accrues during the in-school and grace periods, and during any authorized deferment periods.
IRS Offset: Defaulted loans on accounts that the Department of Education has turned over to the Internal Revenue Service (IRS). This action will offset the debt against the defaulter's income tax refund.
Lender (active): An eligible lending institution which has made at least one Stafford Subsidized, Stafford Unsubsidized, PLUS, or SLS loan in a fiscal year.
Lenders' Default Claims Rate: The ratio of default claims paid since program inception to all loans that have entered repayment (matured paper) since program inception. The default rate does not reflect any collection activity subsequent to the default. Commonly referred to as the gross default rate.
Loan: Money borrowed that must be repaid.
Loan Advances: Non-interest bearing loans with no fixed maturity, which the Federal government makes to a guaranty agency to help establish or maintain the guaranty agency's reserves for loan guarantees. Advances were authorized in 1965, 1968, and 1976.
Loan Fee: An expense of borrowing deducted proportionately from each FFEL disbursement.
Loan Limits: Limits placed on student borrowers in terms of the maximum numbers of dollars they may obtain through Federally funded Student Financial Assistance programs (SFA). Loan limits vary by type of loan, academic level, program length, and whether a student is dependent or independent. Here is one example of Stafford Subsidized and Unsubsidized loan limits for FFEL and FDLP loans to independent students when program length or the enrollment period is one academic year:
Loan Principal: The total sum of money borrowed.
Loan Volume: Refers to the dollar amount or number of loans committed. Loan volume may be reported in thousands or millions of dollars.
Loan Volume Commitments: The total amount of loans that lenders or guarantee agencies commit to borrowers. The principal amount actually loaned may be less than the total value of loan commitments due to cancellations. Also, consolidated loans are excluded from the totals when calculating total loan commitments.
Loans in Repayment: Loans that have entered the repayment period after expiration of the grace period.
Mandatory Assignments: Loans assigned to the Department of Education after the guaranty agency has made the required effort to collect on defaulted loans.
Matured Paper: The cumulative dollar amount of loans that have ever entered repayment. It is a measurement equal to the cumulative dollar amount of loans disbursed since the program's inception less the dollar amount of loans in the in-school and grace periods.
National Cohort Default Rate: The number of student borrowers that entered repayment in a cohort fiscal year and defaulted on these loans divided by the total number of student borrowers that entered repayment in the cohort fiscal year.
Net Cost of Loan Defaults: The cost of the loan default claims minus the collections that are made on the defaulted loans.
Net Default Rate: The net default rate is computed by dividing the cumulative dollar amount of default claims paid to lenders, less cumulative collections by matured paper. It measures, on a cumulative basis, the dollar amount of net loss to the Department compared to the total dollar amount of loans subject to default. This definition was revised in 1985 to reflect the proper credit for collection active while providing a valid barometer of the cash loss to the Department.
Operating Expenses: Expenses incurred by a guaranty agency, such as salaries, travel, computer hardware and software, equipment, rent, supplies, and contractor costs.
Origination Fee: A fee charged and deducted from the proceeds of an FFEL program loan before the loan is disbursed. The origination fee offsets some of the administrative costs of loan processing. The fee must not exceed the maximum rate established by law. This fee is deducted from the interest and special allowance the Federal government pays the lender. Generally, lending institutions pass this fee on to borrowers at the time the loans are made.
PLUS Loan (FDLP or FFEL): Parent Loans for Undergraduate Students. Loans taken out by parents for the purpose of helping to pay for their children's undergraduate education. Parents are responsible for all interest charges. The loan value may not exceed the full cost of the student's education, minus any other financial aid that the student receives. Interest rates are fixed or variable, not to exceed 12 percent.
Prepayment: Any amount paid on a loan by the borrower before it is required to be paid under the terms of the promissory note. There is never a penalty for prepaying principal or interest on FDLP loans.
Promissory Note: A legally binding contract between a lender and a borrower. The promissory note contains the terms and conditions of the loan, including how and when the loan must be repaid.
Proprietary Borrowers: Borrowers at for-profit institutions.
Proprietary Institutions: Postsecondary institutions that are operated for profit.
Recovery Rate: The ratio of cumulative dollars collected by the Federal government or a guaranty agency on defaulted loans to cumulative dollars paid in default claims.
Refinancing of PLUS/SLS: There are three refinancing options for PLUS student, SLS and PLUS parent borrowers: (1) refinancing to secure combined payment; (2) refinancing to secure a variable interest rate; (3) refinancing by discharge of previous loan.
Rehabilitation Loans: When 12 consecutive payments have been made on a formerly defaulted loan, it can become a rehabilitation loan. Once a loan becomes rehabilitated, it becomes a new loan. A borrower again becomes eligible for participation in Title IV programs.
Reinsurance Fees: Guarantee agencies must pay to the Department a fee of 0.25 percent of the total principal amount of loans guaranteed by the agency during the fiscal year, beginning FY 1987. The fee is 0.5 percent for any year in which the agency hits the five- percent reinsurance "trigger." The fee applies to all Stafford, PLUS and SLS loans (except refinanced loans).
Reinsurance Payments (Reinsurance Default Claims): Monies the Federal government gives a guarantee agency as reimbursement for payments made to lenders for losses due to borrower default.
Repayment Period: The period, which a borrower is responsible for repaying his or her loan. In the case of Stafford loans, this period begins on the day after the last day of the grace period. In the case of PLUS and SLS loans, this period begins on the day the loan is disbursed. The maximum repayment period is ten years, not including any authorized deferment or forbearance periods.
Repayment Schedule: A statement provided by the Direct Loan Servicing Center to the borrower that lists the amount borrowed, the amount of monthly payments, and the date payments are due.
Sallie Mae: A Federally chartered, stockholder-owned corporation which provides liquidity to lenders by purchasing and/or warehousing student loans. Sallie Mae, with over $15 billion in outstanding loans, is currently the largest holder of FFEL program loans. Sallie Mae is also referred to as the Student Loan Marketing Association (SLMA).
Secondary Market: An institution or organization that purchases eligible student loans and provides lenders with a source of liquidity to make new loans. Congress established Sallie Mae as a national secondary market. In addition, other secondary markets operate in a number of States at either the State or regional level.
Special Allowance: A quarterly supplemental interest payment to lenders based on the outstanding principal balance of Stafford, PLUS, SLS and Consolidation loans. This payment assures that, as a complement to the borrower's interest rate, the lenders receive an equitable yield on their loans.
Stafford Subsidized Loan (FDLP and FFEL): A federally subsidized student loan made on the basis of the student's financial need and other specific eligibility requirements. Stafford Subsidized loans have subsidized interest, which means that the federal government does not charge interest on these loans while borrowers are enrolled at least halftime, during the six-month grace period following graduation, or during authorized periods of deferment. Stafford Subsidized loans are available to undergraduate and graduate students while the student is in school. The borrower begins to repay the principal and interest after leaving school. Following a 1992 amendment to the Higher Education Act, an unsubsidized component was added to the Stafford Loan Program.
Stafford Unsubsidized Loan (FDLP and FFEL): As part of the Higher Education Amendments of 1992, this unsubsidized component was added to the Stafford loan program. These loans are made to borrowers meeting specific eligibility requirements. Interest is charged throughout the life of the loan. The borrower may choose to pay the interest charged on the loan or allow the interest to be capitalized (added to the loan principal).
Standard Repayment Plan: A plan that requires a borrower to pay at least $50 a month and allows up to 10 years to repay.
Student Financial Assistance (SFA) programs: Student Financial Assistance programs, administered by the Office of Postsecondary Education, U.S. Department of Education, provide funds to help borrowers meet the costs of postsecondary education. The terms "SFA Programs" and "Title IV Programs" are often used interchangeably.
Supplemental Loans for Students (SLS): Prior to July 1, 1994, Supplemental Loan for Students (SLS) loans were available for independent students who were not qualified for sufficient financial aid under the FFEL Stafford loan program. Graduate and professional students, independent students and, in some cases, dependent undergraduate students could participate in this loan program. Repayment began within 60 days after disbursement was not subject to deferral. There was no Federal interest subsidy. Interest rates were fixed or variable and could not exceed 12 percent.
Trigger Rate: The ratio of reinsurance claims paid to a guarantee agency during any fiscal year to the agency's total amount of loans in repayment at the end of the preceding fiscal year. If this ratio equals 5 percent, an agency is reimbursed for 90 percent of its losses. If the ratio equals 9 percent, the agency is reimbursed for 80 percent of its losses.
USAF: United Student Aid Funds is a guaranty agency, which is the designated guarantor for several states.
Variable Interest: Rate of interest on a loan that is tied to a stated index and changes annually every July 1 as the index changes.
Warehousing Advances: Advances provided to lenders to invest in additional student loans. This enables the lenders to finance their new and outstanding student loan portfolios without depleting their funds.