Financial Aid Overview

Glossary of Technical Terms

Most students will need a student loan, so it's wise to know what all the terms mean and how they apply to you. Terms that are used in a definition but are defined in this section are indicated in blue.

Borrower benefits - Think of these in terms of a price break you get when you buy something or a rebate you get after you buy it. A lender can charge an origination fee, while a guarantor must charge a federal default fee. Not all lenders and guarantors charge the same fees. These fees are deducted before you see the money, so the lower the fees, the more money you receive to pay for your education.

You can also get breaks when you start repaying your loan. Many lenders will charge you a lower interest rate if you follow certain criteria.

Federal default fee - The guarantor must charge you up to 1 percent of your loan as a default fee. Some lenders will pay this fee for you.

Guarantor - The guarantor has a contract with the lender to pay off a student loan under special circumstances.

Interest - This is the money you pay the lender for letting you use its money to pay your school costs.

Lender - The lender is whoever loans you the money. It can be a bank, a nonprofit state corporation, a credit union, or some other financial institution.

Origination fee - This helps cover the costs the lender has to pay for doing business with you. Lenders can charge up to a 1 percent origination fee.

Principal - This is the actual amount you borrow before the origination fee and federal default fee are deducted. The interest you are charged will be based on the principal.

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