Defined: Basic Financial Aid Terms

From alternative loans to work-study, we've got you covered

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Alternative loan: Loan other than an official federal student loan that is used to pay for college expenses not covered by a student’s financial aid package.

Borrower: The person legally responsible for repaying a loan and who has signed a promissory note.

Consolidation: The combination of several types of existing federal education loans into one new loan that can simplify repayment.

Conversion scholarship/loan: Financial aid award that requires you to provide certain services for prescribed periods or pay back the funds received with interest.

Direct Loans: Loans made by the U.S. Department of Education. Students and parents can receive Direct Loans only if the school participates in the Direct Loan Program.

Expected family contribution (EFC): What the federal government formula says your family should be able to pay toward yearly college costs. The EFC amount is based on financial aid information submitted on the Free Application for Federal Student Aid (see below) about your family’s income and assets.

Federal Family Education Loan Program (FFELP): Name for the loaning program for federal Stafford Loans provided by The Student Loan People and other lenders and insured by agencies such as the Kentucky Higher Education Assistance Authority (KHEAA).

Free Application for Federal Student Aid (FAFSA): Need-analysis form that must be completed by all students applying for federal and state student aid.

Financial aid package: Total financial aid award received by a student. It can consist of several types of aid, including grants, scholarships, loans and work-study. The student’s financial need, availability of funds at a school, a school aid policies and the number of students who need financial assistance all influence the financial aid package.

Financial need: Amount of higher education expenses that a student’s expected family contribution (EFC) falls short of paying. Financial need equals the cost of education minus the EFC.

Grant: Financial aid award that does not have to be repaid. It is based on financial need to help pay the cost of higher education.

Guarantor: State or nonprofit private agency that administers the Federal Family Education Loan Program (FFELP) in each state. The Kentucky Higher Education Assistance Authority (KHEAA) is the guarantor for Kentucky.

Institutional aid: Various types of student financial assistance coming from and administered by the individual school.

Interest: Additional cost for a loan, usually a percentage of the amount borrowed; it adds to the unpaid amount of a loan that must be paid back.

Kentucky Higher Education Assistance Authority (KHEAA): State agency that helps students attend college by administering student financial aid programs, providing free college planning materials, and distributing financial aid information.

Lender: Organization (school, bank, credit union, other financial institution or the U.S. Department of Education) that makes a loan.

Loan: Money borrowed to help pay for college costs. Loans must be repaid with interest.

Need analysis: Process used to determine how much students and their families can reasonably be expected to pay toward college expenses. Need analysis formulas are updated each year by the federal government and other organizations to reflect changes in the economy.

Perkins Loans: Low-interest loans made under the Federal Perkins Loan Program to undergraduate and graduate students through your school. You repay the school or the agent the school hires to service the loan. Loans are made based on financial need.

PLUS Loans: Loans made to parents to help pay college expenses.

Promissory note: Binding legal contract between a lender or loan holder and the borrower. The promissory note contains a loan’s terms and conditions, including how and when the loan must be repaid. By signing, the borrower agrees to repay the loan.

Principal: Total sum of money borrowed. Loan principal includes the original amount borrowed plus any interest that has been added to the loan.

Repayment schedule: Statement the loan holder gives the borrower showing the amount borrowed, the monthly payment amount and the date payments are due.

Scholarship: Financial aid award to help pay for college. It does not have to be repaid and is generally based on skill, ability, background, talent and/or achievement.

Stafford Loans: Loans made to undergraduate and graduate students under the FFELP and Direct Loan program. Borrowers can receive loans regardless of financial need. Interest rates vary but cannot exceed 8.25 percent.

Student Aid Report (SAR): Document produced from information provided on the Free Application for Federal Student Aid (FAFSA) and sent to the student. The SAR reports the student’s eligibility for aid and expected family contribution (EFC).

Subsidized loan: Federal student loan based on financial need and other requirements.

Tuition: Amount schools charge for instruction and for the use of certain school facilities such as libraries.

Unsubsidized loan: Federal student loan not based on financial need.

Waiver: Arrangement under which a school does not charge specific costs if a student meets certain qualifications.

Work-study: Employment that lets students earn money to help pay the costs of higher education.
 

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