Financial Aid Glossary of Terms
Adverse Credit History - To be eligible for a Federal PLUS loan, the borrower may not have an adverse credit history, which is defined as having a bankruptcy, foreclosure, repossession, tax lien, wage garnishment or default determination in the last five years or a current delinquency of 90 days or more.
Asset - An asset is a property with a financial value, such as bank and brokerage accounts, cash, stocks, bonds, mutual funds, money market accounts, certificates of deposit, trusts, tax shelters, college savings plans (529 plans, prepaid tuition plans, Coverdell education savings accounts), real estate (house, land, farm), business, retirement plans (401(k), 403(b), traditional IRA, Roth IRA, Keogh, SEP, SIMPLE, pension plan) life insurance and income producing property. Some assets, such as qualified retirement plan accounts, are not reported on financial aid application forms.
Capitalization of Interest - Interest capitalization occurs when unpaid interest is added to the loan balance. This causes the loan to grow larger, increasing the cost of the loan. Interest can be capitalized monthly, quarterly, annually or when the loan enters repayment. Capitalization causes interest to be charged on top of interest.
Co-signer - A co-signer is a co-borrower, equally as obligated to repay the debt as the primary borrower.
Cost of Attendance (COA) - The cost of attendance is the full one-year cost of enrolling in medical school. It includes direct (required) costs, such as tuition and required fees, textbooks and supplies and indirect costs such as rent, travel, personal expenses, health insurance and dependent care.
Deferment - Deferment is the temporary suspension of the obligation to repay a debt. Interest on Federal Unsubsidized loans continues to accrue and remains the responsibility of the borrower and is capitalized if unpaid. Federal education loans may be deferred while the borrower is enrolled at least half-time, during the grace period and during periods of economic hardship.
Education Tax Benefits - An education tax benefit is a form of student aid obtained by filing a federal income tax return. Examples include the Hope Scholarship (American Opportunity Tax Credit) and Lifetime Learning tax credits, the Tuition and Fees Deduction and the Student Loan Interest Deduction.
Expected Family Contribution (EFC) - The expected family contribution is a measure of the family's financial strength. It is based on the income and assets of the student, the student's parents, and, if applicable, the student's spouse. The EFC is also based on the size of the family and number of children in college. The EFC does not consider certain forms of unsecured consumer debt, such as credit cards and auto loans.
There are two formulas that determine EFC: federal methodology (FM) and institutional methodology (IM). The two formulas differ in the types of assets that are included (family home and other assets), the assumption of a minimum student contribution, the treatment of losses, regional differences in cost of living, allowances for educational savings and emergency funds, the treatment of children of divorced parents and adjustment for more than one child in college at the same time. The FM EFC is used for determining eligibility for federal and state aid and financial aid at most universities.
Federal Education Loan - Federal education loans are cheaper, more available and have better repayment terms than private student loans. The interest rates on federal loans are fixed, while most private student loans have variable rates. Examples of federal loans include Stafford and PLUS loans and are made through the Department of Education Direct Loan Program.
Financial Aid - Financial aid is money that families and students use to bridge the gap between expected family contribution and the cost of attendance.
Financial Aid Award - A financial aid award is a component of the financial aid package and includes loans, grants and scholarships.
Forbearance - The permission to postpone, reduce or extend loan payments because of serious hardship. Interest continues to accrue during forbearance, though, so the amount owed ends up increasing.
Forgiveness - Cancelation of a debt, usually for working in a national service shortage area or serving in the military.
Free Application for Federal Student Aid (FAFSA) - A financial aid application form used to apply for federal and institutional aid. It is filed at www.fafsa.ed.gov and is available on January 1st. The student will receive a Student Aid Report (SAR) outlining expected family contribution about two weeks after filing.
Grace Period - Period of time during which a borrower is not required to begin repayment. Grace periods are loan specific, meaning a) the length of the grace period varies by loan type and b) once used in their entirety, the borrower may not use the grace period again for that particular loan. Borrowers do not have to apply for grace.
Interest - Interest is a periodic fee charged for the use of borrowed money. The interest rate is expressed as a percentage of the loan balance and may be fixed or variable.
Master Promissory Note (MPN) - A legal contract in which the borrower agrees to repay a loan. It specifies the terms of the loan, such as interest rates and fees. The MPN is a promissory note that is effective for a continuous period of enrollment up to 10 years.
Need Analysis - The process of evaluating the family's financial strength by considering income, assets, family size, and the number of children in college and the age of the older parent.
Need-Based Aid - Awarded based on demonstrated financial need.
Principal - The amount of money borrowed or owed on a loan, not including interest and other charges.
Private Student Loan - A loan made and funded by a private lender, such as a bank or other financial institution. Private student loans tend to be more expensive than federal loans and have less flexible repayment terms.
Professional Judgment (PJ) - This is a process by which the financial aid officer reviews unusual circumstances to determine possible adjustment to the need-based financial aid package. Unusual circumstances include changes in the family's financial situation from the previous year, such as job loss, salary reduction and death of a wage-earner, as well as anything that distinguishes the family from other typical families, such as high unreimbursed medical expenses, high childcare or eldercare costs. The professional judgment review is driven by documentation of the unusual circumstances. This review may lead to a revised financial aid package.
Satisfactory Academic Progress (SAP) - Required for continued receipt of financial aid. SAP is the successful completion of degree requirements according to established increments that lead to awarding of the degree within specified time limits. Not meeting the SAP requirements may result in loss of all financial aid, federal or institutional.
Student Aid Report (SAR) - The Student Aid Report lists the data elements submitted on the FAFSA, some intermediate calculations and expected family contribution (EFC).
Unsubsidized Loan - Loans that accrue interest from the date of disbursement, interest which, if unpaid by the borrower, will be added back to the principal through a process called capitalization. Examples include Federal Unsubsidized Stafford (either FFELP or Direct), Federal SLS, Federal PLUS, private loans, and some institutional loans (check your promissory note or ask your medical school financial aid officer).