A–F Terms
Understanding the alphabet soup of student aid begins with the basics. Here are key terms you'll encounter, from applications to interest calculations.
- Accrued interest – Interest that accumulates on a loan's principal balance and is owed at a later time.
- Annual Percentage Rate (APR) – The cost of borrowing money, expressed as a yearly rate. It includes the interest rate plus certain fees, giving you a fuller picture of the loan's total cost.
- Capitalization – Adding unpaid interest—such as interest that accrued during deferment or forbearance—to the principal balance of a loan, which increases your total debt.
- Consolidation – Combining multiple federal student loans into one new loan, simplifying repayment and potentially lowering your monthly payment.
- Default – Failing to repay your loan according to the terms of your promissory note, often after 270 days of missed payments for federal loans. Default can have serious consequences for your credit and finances.
- Deferment – A temporary postponement of loan payments. During deferment, interest usually does not accrue on subsidized loans, but it does accrue on unsubsidized and PLUS loans.
- Direct Loan – A federal student loan made through the William D. Ford Federal Direct Loan Program, which includes Subsidized, Unsubsidized, PLUS, and Consolidation loans.
- Direct Subsidized Loan – A need-based federal loan for undergraduate students. The U.S. Department of Education pays the interest while you are in school at least half-time, during your six-month grace period, and during deferment.
- Direct Unsubsidized Loan – A federal loan for undergraduate and graduate students. Interest accrues from the day the loan is disbursed, including while you are in school.
- Disbursement – The process by which your loan funds are paid out to your school.
- FAFSA – The Free Application for Federal Student Aid, which you submit to apply for federal grants, work-study, and loans.
- Forbearance – A temporary pause or reduction in loan payments, generally granted at the lender's discretion. Interest accrues on all loan types during forbearance.
Sources: MOHELA (official student loan servicer), U.S. Department of Education, Abe, VantageScore
G–M Terms
These terms cover the middle of the alphabet, including repayment plans, fees, and the formula used to determine financial aid.
- Grad PLUS Loan – A federal PLUS loan for graduate and professional students. It requires the borrower to not have an adverse credit history. Check with your servicer for current availability and terms.
- Grant – A form of financial aid that does not need to be repaid, often based on financial need.
- Grace Period – A set period after you graduate, leave school, or drop below half-time enrollment before you must begin repaying your loan.
- Interest Rate – The percentage of your loan balance that you pay to borrow money, typically expressed as an annual rate.
- Loan Servicer – The company that handles billing and other services for your federal student loan, such as MOHELA.
- Master Promissory Note (MPN) – The legal document you sign promising to repay your federal student loans and outlining the terms and conditions.
Sources: MOHELA (official student loan servicer), U.S. Department of Education, Abe
N–R Terms
Here, you'll find terms related to new repayment options, loan limits, and the process of repaying your debt.
- Need Analysis – The process of determining your financial need by considering your family's income, assets, and other factors.
- Principal – The original amount of money you borrow, not including interest or fees.
- Private Student Loan – A nonfederal loan from a bank, credit union, or other private lender. Terms often depend on your creditworthiness.
- Repayment Assistance Plan (RAP) – A new income-driven repayment plan that became effective July 1, 2026, offering lower monthly payments tied to your income.
- Repayment Plan – The schedule for paying back your loan, including options like Standard, Graduated, Extended, and Income-Driven Repayment plans.
- Subsidized Loan – A federal loan based on financial need where the government pays the interest while you're in school and during certain periods.
Sources: MOHELA (official student loan servicer), Abe
S–Z Terms
The final set of terms covers everything from the Student Aid Index to upcoming changes in auto-pay discounts.
- Saving on a Valuable Education (SAVE) Plan – An income-driven repayment plan that ended on March 10, 2026 due to a court order. New applications were no longer accepted, and existing borrowers were transitioned to other repayment options.
- Student Aid Index (SAI) – The number used since the 2024–25 award year to determine your eligibility for need-based federal student aid. It replaced the Expected Family Contribution (EFC).
- Tiered Standard Plan – A new repayment plan that became effective July 1, 2026, with payments that increase over time, potentially easing early repayment burdens.
- Unsubsidized Loan – A federal loan for which you are responsible for all interest from the day it is disbursed, even while you are in school.
- Variable Interest Rate – An interest rate that can change periodically based on an index, such as the prime rate.
- Work-Study – A federal program that provides part-time jobs for students with financial need, helping them earn money to pay for educational expenses.
- Auto-Pay Interest Rate Reduction – A discount offered to borrowers who enroll in automatic payments. Starting July 1, 2026, the auto-pay interest rate reduction for eligible Direct Loans disbursed on or after July 1, 2012 will be 1%, up from the previous 0.25%.
Sources: MOHELA (official student loan servicer), Abe, VantageScore
Frequently asked questions
What is the difference between a loan and a grant?
A student loan is money you borrow to pay for education that you must repay with interest. A grant, such as a Pell Grant, is financial aid that does not need to be repaid. Grants are typically awarded based on financial need or other criteria.
Sources: AbeWhat is forbearance and how does it differ from deferment?
Forbearance is a temporary pause or reduction in your loan payments, generally granted at the lender's discretion. During forbearance, interest accrues on all loan types. Deferment is also a temporary postponement of payments, but interest does not accrue on subsidized loans during deferment (though it does accrue on unsubsidized and PLUS loans). Deferment is often available for specific situations like returning to school or economic hardship.
Sources: AbeWhat is the FAFSA?
The FAFSA is the Free Application for Federal Student Aid. It is the form you submit to apply for federal grants, work-study, and loans. The information you provide on the FAFSA is used to calculate your Student Aid Index (SAI) to determine your eligibility for need-based aid.
Sources: AbeWhat does APR stand for?
APR stands for Annual Percentage Rate. It represents the yearly cost of borrowing, expressed as a percentage, and includes the interest rate as well as certain fees. APR gives you a more complete view of the loan's total cost compared to the nominal interest rate alone.
Sources: VantageScoreSources
- Student Loan Industry Glossary — MOHELA (official student loan servicer)
- Federal Student Aid Handbook Glossary — U.S. Department of Education
- Student Loan & College Financing Glossary — Abe
- Guide to Student Loan Lingo — VantageScore