Financial Aid Definitions You Need to Know

A

Acceptance Rate: The percentage of students, out of everyone who applied for admission to a particular school, who were offered admission.

Accrued Interest: Interest that accumulates from the date of the loan disbursement through the length of repayment.

AGI (Adjusted Gross Income): Total gross income minus deductions.This amount is used during the financial aid process to determine need.

Aid Package: The total amount of financial aid offered by the college after analyzing data on the FAFSA.

Articulation Agreement: An agreement intended to facilitate transferring from one college to another, particularly from a community college to a four-year college. These agreements

generally detail what course credits will and will not be accepted and what degree requirements they will fulfill.

Award Letter: An official document issued by the college’s financial aid office listing all the financial aid awarded to the student.

C

COA (Cost of Attendance): The total cost of attending a college or university for one academic year. It’s listed on the award letter.

Consolidation: Combining all individual federal loans into one loan with the government. The fixed interest rate is an average of the individual loans that were consolidated. This only applies to federal student loans and allows borrowers to keep the protections and benefits that come with them, while paying towards a single loan balance.

Cosigner: Someone who signs the loan along with the student borrower. They’re legally obligated to repay the loan if the student fails to make payments.

Cosigner Release: An agreement that allows the cosigner to be released from any legal obligation to pay back the loan once the lender’s terms have been met. This would remove the loan from the cosigner’s name, and the debt would no longer show on their credit report. Each lender has different requirements to qualify for the release.

CSS Profile (College Scholarship Service Profile): A non-government FAFSA; not all schools require it, but most private universities do.

D

Deferment: An agreement between the borrower and lender to reduce or postpone repayment of a loan for a designated period, often during enrollment in college or before being employed

after graduation. During deferment, interest does not accrue on subsidized federal student loans.

Demonstrated Need: The difference between total college costs (COA) and the family’s ability to pay (EFC). It is the amount of money the family needs for the student to be able to enroll at the college.

Dependent Student: A student who is dependent on parents or guardians for financial assistance based on the guidelines established by the Department of Education. The Department of Education has specific criteria to determine dependency for the purpose of student aid.

Direct Loan: A loan offered by the U.S. Department of Education. Direct loans can be subsidized, unsubsidized, parent loans, graduate loans and consolidation loans.

E

EFC (Expected Family Contribution): The amount a family is expected to pay based on their specific circumstances and finances from data retrieved on the FAFSA.

F

FAFSA (Free Application for Federal Student Aid): A federal form that is completed to give colleges a picture of a family’s financial status. Colleges use this to determine the amount of aid needed to attend.

Federal Aid: Aid funded by the federal government and administered by the U.S. Department of Education along with the college or university.

Federal Grant: Money from the federal government that does not have to be repaid.

Federal Methodology: The formula used by the federal government in calculating a student’s Expected Family Contribution (EFC) which determines their eligibility for financial aid.

Financial Aid: Any type of grant, scholarship, or work-study offered to meet the cost of attendance.

Financial Need: The difference between a college’s cost of attendance (COA) and the expected family contribution (EFC) used to award need-based financial aid.

529 Plan: A college investment tool that allows tax-free growth when funds are used for qualified educational expenses such as tuition, fees, and room and board. This can be used for college, grad school, trade school, and certain apprenticeships.

Fixed Interest Rate: A type of interest rate that does not fluctuate over the course of the loan term.

Forbearance: An agreement between the borrower and their lender to postpone repayment for a designated period based on meeting specific conditions, such as: financial difficulties, medical expenses, change of employment, or other reasons acceptable to the loan servicer. Interest accrues on all loans during forbearance.

FSA ID: A required ID made up of a username and password. Students, parents, and borrowers must create this ID to access certain U.S. Department of Education online systems and sign federal student aid documents.

Financial Aid Appeal: An appeal directed towards the financial aid office of a college to request additional aid beyond the amount originally offered in the financial aid award letter.

G

Gapping: Refers to colleges not covering 100% of a student’s financial need. If a college’s financial aid award doesn’t cover all of a student’s needs, the student has been “gapped.”

Grace Period: A defined amount of time after a borrower graduates or ceases to be enrolled at least half-time before beginning repayment.

Graduated Repayment: Repayment plan for federal loans that starts with lower payments that increase every two years. This plan is meant to help with students who start out with a lower income but expect it to steadily increase over time.

I

Income-based Repayment: Repayment plan for federal loans that cap the required monthly payment at an affordable amount based on income and family size.

Independent Student: Student who either lives independently of parents or guardians, is 24 years of age, or fulfills other requirements established by the Department of Education. This student does not include parent information on the FAFSA.

Institutional Aid: Financial assistance or aid program funded and administered by the college or university.

Institutional Methodology: Method developed and maintained in partnership with practicing financial aid professionals and economists used by colleges to evaluate a family’s ability to pay for the cost of higher education.

M

Merit Aid: Financial aid awarded by the college that is not based on financial need, often based

on academics or other achievements and talents.

N

Need Aware: A need aware (or need sensitive) policy means that the college or university makes most of its admissions decisions based on the student’s need for college money. In other words, they may reserve some spots for students who are able to meet the college program’s full cost of attendance (COA) without the need for loans, grants, or scholarships.

Need-based Aid: Aid disbursed to students based on financial need.

Need Blind: The policy of admitting students to a college without considering their ability to pay.

Net Price: The real cost for a year of college determined by taking the stated cost of attendance and subtracting free money such as merit and need-based scholarships and grants. The net price is specific to each student because it’s based on their personal circumstances and the college’s financial aid policies. (Loans do not change the net price.)

O

Origination Fee: A percentage of the loan that is charged by the lender when they process a student loan. Federal loans all have origination fees and some private lenders may as well. It is also known as a loan or disbursement fee.

P

PLUS (Federal Parent Loans for Undergraduate Students): A loan with relatively low interest rates for creditworthy parents to pay the cost of education for a dependent student.

Private Parent Loan: A loan offered by a private lender, such as a bank or credit union, to cover the cost of education for a dependent student with higher interest rates. Typically, these loans offer limited deferment and forbearance options and no loan forgiveness, loan discharge or cancellation options.

Private Student Loan: A loan offered by a private lender such as a bank or credit union, state agency, or a school for students to pay the cost of attendance, typically requiring a creditworthy cosigner to qualify.

R

Refinance: Combining all student loans (federal and private) together through a private lender into a single, more affordable loan. Students can refinance loans to get a lower interest rate if they or their cosigner have good credit.

S

SAR (Student Aid Report): A report sent to the student after completing the FAFSA. It’s a summary of information provided on the FAFSA that is used to determine the expected family contribution (EFC).

Scholarship: Money to help pay for the cost of tuition that does not need to be repaid after graduation. This is based on specific criteria from the college itself or private organizations.

Subsidized Loans: Lower interest rate loans awarded based on the student’s financial need with interest deferred until after graduation.

U

Unsubsidized Student Loans: Federally guaranteed loans awarded without regard to financial need with interest accruing immediately upon disbursement. Regular payments begin after graduation.

V

State Grants: Money from a state that is given to resident students who are attending in-state schools. It does not have to be repaid.

Variable Interest Rate: A type of interest rate that may fluctuate over the course of the life of the loan depending on the market.

Verification: An asterisk next to the expected family contribution (EFC) on a Student Aid Report (SAR) indicates the person’s FAFSA has been selected for verification. If someone is flagged for FAFSA verification, they’ll be asked to provide documentation that proves the information submitted is accurate.

W

Work Study: Need-based aid in the form of part-time employment at the college or a non-profit or government agency that helps pay the cost of attendance.

Y

Yield: Of all applicants admitted to a school, the percentage who accept and enroll.

Yield Management: A practice some schools employ to protect their yield. For example, rejecting the applicants whom they determine have not shown demonstrated interest. Also called “Yield Protection.” Schools with lower yield percentages may be more open to financial aid appeals in order to get students who were offered admission to enroll.