Capitalization
Capitalization is the addition of unpaid interest to the principal balance of a loan. When the interest is not paid as it accrues during periods of in-school status, the grace period, deferment, or forbearance, your lender may capitalize the interest. This increases the outstanding principal amount due on the loan and may cause your monthly payment amount to increase. Interest is then charged on that higher principal balance, increasing the overall cost of the loan. If you have a Direct Unsubsidized Loan or Graduate PLUS Loan, making interest payments while you are in school can minimize the amount of interest that will capitalize once you enter repayment. This will allow you to pay less over the life of the loan.
Consolidation
Loan consolidation allows you to combine multiple federal student loans into one loan, leaving you with a single monthly payment instead of multiple payments. For more information about loan consolidation, including how to apply, click here.
Default
Loans are sources of financial aid that MUST be repaid. Failing to make payments on your loans (default) has serious consequences. To learn more about the consequences of loan default, as well as what to do if you have already defaulted, click here.
Deferment
A deferment is a period during which repayment of the principal and interest of your loan is temporarily delayed. You do not have to make payments during deferment. Deferments are not always automatic, and you may need to request one from your loan servicer. For more information, click here.
Forbearance
If you do not qualify for deferment, you loan servicer may be able to grant you a forbearance. This allows you to stop making payments on your loan for up to 12 months due to financial hardship, illness, etc. Forbearance is not automatic and must be requested from your loan servicer. For more information, click here.
Forgiveness
Certain circumstances such as permanent disability, death, bankruptcy and public service may qualify you to have your loans forgiven, cancelled, or discharged. If you qualify for one of these circumstances, you are no longer required to make payments on your student loans. For a list of circumstances that qualify for loan forgiveness and for information on how to apply, click here.
Grace Period
The grace period is a set period of time after you graduate, leave school, or drop below half-time enrollment before you must begin repayment on your loan. Remember that for most loans, interest will accrue during your grace period. For more information about the grace period for your loans, click here.
Interest
Interest is money paid to your loan lender in exchange for borrowing money. All federal student loans much be repaid with interest. For more information about the interest rate for your federal student loan, click here.
Lender
Your student loan lender is the organization that made the loan initially. If you have borrowed a loan under the William D. Ford Federal Direct Loan Program, the U.S. Department of Education is your lender. The loan lender is not responsible for collecting repayment of your loan. Instead, repayment is handled by your loan servicer.
Loan Servicer
A loan servicer handles billing and other services for your federal student loans including but not limited to: consolidation, deferment, forbearance and repayment. Your loan servicer will be assigned to you by the Department of Education. If you do not know who you loan servicer is you may find out by visiting the National Student Loan Data System.
National Student Loan Data System (NSLDS)
The National Student Loan Data System (NSLDS) is the U.S. Department of Education's central database for student aid. You can use the web site to make inquiries about your federal student loans and/or grants. The site displays information on federal loan and/or grant amounts, outstanding balances, loan statuses, disbursements, and servicer contact information. Access NSLDS here: National Student Loan Data System.
Principal
Your principal loan balance is the amount owed on your student loan, including any capitalized interest.
Repayment
Repayment on your federal student loans does not begin until after you graduate, leave school, or drop below half-time enrollment. Your lender or loan servicer must provide you with a loan repayment schedule that states when your first payment is due, the number and frequency of payments, and the amount of each payment.
Repayment Plans
Borrowers from the Direct Loan or Federal Family Education Loan (FFEL) program have the benefit of multiple loan repayment options. Contact your loan servicer to discuss your repayment plan options.
- Standard Repayment Plan: Payments are a fixed amount for up to 10 years.
- Graduated Repayment Plan: Payments are low at first and increase every 2 years for up to 10 years.
- Extended Repayment Plan: Payments may be fixed or graduated for up to 25 years.
- Income-Based Repayment Plan: Payments will be 15% of your discretionary income and may change as your income changes for up to 25 years.
- Pay As You Earn Repayment: Payments are 10% of your discretionary income and may change as your income changes for up to 20 years.
- Income Contingent Repayment: Payments are calculated each year based on your Adjusted Gross Income, family size, and the total amount of your loan debt for up to 25 years.
- Income Sensitive Repayment: Payments are based on your annual income and change as your income changes for up to 10 years.
For more detailed information about loan repayment options, click here.