Loan Term Definitions

Auto-debit. Repayment of a loan by auto-debit occurs when the borrower sets up an agreement with the loan servicer to deduct monthly loan payments directly from the borrower’s bank account. Lenders may offer a slight interest rate deduction for this type of payment.

Bar Loan. A private loan product used to pay for the expenses of taking a bar exam.  These may include the cost of the exam, a preparatory course and living expenses.  These loans are generally obtained by 3Ls, 4Es and recent alumni. Bar loans may need to be certified by a financial aid counselor.

Capitalization. A term used to describe a method of computing interest. To capitalize a loan means to add all interest that has accrued to the principal loan amount. Once a loan is capitalized, the new loan amount (both principal and interest) is the amount upon which interest will accrue.

Co-signer/Co-borrower. An additional applicant added to a loan to meet creditworthiness guidelines, often a parent. A co-signer/co-borrower has the same legal responsibility on the loan as the primary borrower.

Credit-Based. Credit-based lending considers past credit history and income to determine eligibility for a loan. Repayment history, delinquencies, and length of time accounts have been established are considerations in determining a borrower's ability to obtain a loan. The credit history of both the student (if he or she has a credit history) and the co-applicant will be reviewed. Graduate PLUS and private loans are credit based.

Credit Score. Your credit score is a number based on the information in your credit file that shows how likely you may be to pay a loan back on time — the higher your score, the less risk you represent.

Deferment. A time during which the borrower is not required to make payment. During deferment, interest will accrue on the loan, although the borrower is not obligated to make payment on the loan amount. Law school students taking at least half time credits are eligible for an in-school deferment.

Endorser. If a student is denied a Federal Direct Graduate PLUS Loan due to adverse credit they will be given the opportunity to re-apply with a credit worthy endorser.  The endorser is considered a co-borrower. If the student chooses to later consolidate the loan with Federal Direct, the endorser will be removed from the Loan.

Enrollment Status. Your educational institutions own classification of your attendance, important to your eligibility for student loans. Federal Stafford, Graduate PLUS, and private loans require that you be enrolled at least half time.

Fixed Interest Rate. This is an interest rate which remains the same throughout the life of the loan.

Forbearance. If you can't make your scheduled loan payments, but don't qualify for a deferment, your loan servicer may be able to grant you a forbearance. With forbearance, you may be able to stop making payments or reduce your monthly payment for up to 12 months. Interest will continue to accrue on your subsidized and unsubsidized loans (including all PLUS loans).

Grace Period. The length of time a borrower is granted before the first payment is due. Grace period may refer to the time between disbursement of funds and the first payment if immediate repayment is required, or the length of time from the end of a deferment period to the first payment.

Guarantee Fee. A fee charged for federally backed student loans. Also normally deducted from the gross loan proceeds and paid on your behalf by your lender to the guarantor.

Interest. Money paid for money borrowed. Most interest is computed using a percentage of the outstanding balance of the loan over time.

LIBOR. LIBOR means the London Interbank Offered Rate. LIBOR represents an average of the interest rates on dollar-denominated deposits, also known as Eurodollars, traded between banks in London. LIBOR is among the most common of benchmark interest rate indices used to make adjustments to variable rate loans.

Origination Fee. The fee, charged by the lender, for services provided in connection with the origination and funding of the loan.

Pre-Payment Penalty.  A fee charged by a lender for early pay off of a loan.  Federal Direct Student Loans do not have a pre-payment penalty.  Please check the terms if you are seeking a private educational loan.

Prime Rate. The Prime Rate is defined by The Wall Street Journal as "The base rate on corporate loans posted by at least 75% of the nation's 30 largest banks." A good website to check loan rates is http://www.primerate.net.

Servicer. Your loan is assigned to a loan servicer by the U.S. Department of Education after your entire loan amount is disbursed (paid out). The loan has been disbursed when your school transfers your loan money to your school account, gives money to you directly, or a combination of both. Your loan is usually disbursed in at least two payments.

Subsidized (Stafford loan). The subsidized portion of a Federal Stafford loan has its interest paid by the federal government during the in-school (at least half-time enrollment) period, and for six months after graduation or a drop to less than half-time enrollment. The FAFSA (Free Application for Student Aid) is used to determine how much subsidized Stafford loan a student may borrow. These loans are only available to undergraduate students as of July 1, 2012.

Unsubsidized (Stafford loan). Up to $20,500 (the annual maximum) of a Federal Stafford loan may be unsubsidized, depending upon how much of a subsidy a borrower receives. If a student qualifies for the full $8,500 subsidy, then the maximum unsubsidized Stafford loan a student may borrow is $12,000 per year. Interest begins to accrue on unsubsidized Stafford loan upon disbursement.

Variable Interest. An interest rate that may change depending on the terms of the loan.


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