Definitions of student loans: 14 terms to know before paying off debt


These common student loan repayment terms are a must for borrowers. (iStock)

Federal student loans and private student loans can both help when it comes to paying for college. But, of course, you have to pay back the loans at some point. And you’ll likely need to evaluate loan programs, establish a repayment schedule, and more to pay off loan debt.

Getting to know some of the most common definitions of student loans can make the process easier. The better you understand how student loan repayment works, the more money you could save by lowering the total cost. Here are 14 student loan terms you should know about.

  1. Student loan manager
  2. Interest rate and annual percentage rate (APR)
  3. Capitalization
  4. Grace period
  5. Student loan refinancing
  6. Credit score and credit history
  7. Debt-to-income ratio
  8. Co-signer
  9. Consolidation
  10. Student loan forgiveness
  11. Income-based reimbursement
  12. Adjournment
  13. Abstention
  14. Delinquency and default

Read on to fully understand what these terms mean – and how they affect you.

1. Student loan manager

If you have federal student loans, you will need to know who your student loans administrator is.

The Department of Education allocates federal student loans to a student loan manager after they are disbursed. It is to him that you will make your monthly student loan payments and from whom you will receive monthly statements.

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2. Interest rate and annual percentage rate (APR)

The interest rate and APR are key student loan repayment terms you should know about, as they are tied to your cost of borrowing.

The interest rate is the cost of borrowing the principal. The APR reflects the annualized cost of borrowing when the interest rate and loan fees charged by the lender are added.

To learn more about interest rates and the APR, visit Credible. Using Creidble’s free online tools, you can compare variable interest rates starting at 1.24% and fixed interest rates starting at 3.53% APR.

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3. Capitalization

Funding is when unpaid interest is added to the principal of your federal student loan during the periods when you are responsible for paying it. When interest is capitalized, the outstanding capital increases.

4. Grace period

A grace period is a temporary period during which you are not required to repay your student loans. With federal student loans, you typically have a six-month grace period after you graduate, drop out of school, or fall below half-time enrollment. Private student loans can also have a grace period, although private student loan lenders are not required to offer one.

Find out what private lenders are now offering through Credible.

5. Student loan refinancing

Refinancing a student loan means taking out a new loan, ideally at a lower interest rate, to pay off existing loans.

If you have private student loans, you may decide to refinance to lower your rate and lower monthly payments. Or if you have private variable interest rate loans, you may want to refinance to a fixed rate and vice versa.

If you are considering refinancing a student loan, it is helpful to compare the rates of several lenders. You can easily do this using this online tool without affecting your credit scores.

WHAT ARE THE REFINANCING RATES FOR STUDENT LOANS?

6. Credit score and credit history

Your credit score is a three-digit number that tells lenders how responsible you are with managing your money. A credit score is based on credit history and credit reports, including:

  • Payment history
  • Use of credit
  • Credit age
  • Types of credit used
  • New credit requests

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7. Debt-to-income ratio

The debt-to-income ratio refers to the amount of your monthly income that goes towards student debt. Private student loan lenders will take this into account when applying for new loans or refinancing student loans.

Basically, the less student debt you have, the better. If you want to increase your chances of being approved for a student loan refinance, then you will want to improve your debt-to-income ratio by paying off your debt and / or increasing your income. Insert some simple personal information into Credible’s online forms to determine where you stand when it comes to a student loan refinance.

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8. Co-signer

A co-signer is someone who agrees to borrow student loans with you and is legally responsible for it.

A co-signer may be required for private student loans because unlike federal student loans, a credit check is usually required. If you have a limited credit history or a low credit rating, a co-signer with good credit could increase your chances of getting approved or help you get a lower interest rate.

You can easily add a co-signer to your loan application through Credible. With Credible, you can even compare multiple co-signers to see which one offers you the best rates and loan terms.

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9. Consolidation

Consolidation allows you to streamline student loan repayment by combining several federal student loans into one.

It sounds like refinancing a student loan, but there is one key difference: Consolidation doesn’t lower your interest rate. However, it may leave you with just one student loan payment to make each month instead of several.

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10. Student loan exemption

Student loan cancellation means that part of your loan balance is canceled, subject to certain conditions being met.

Public service loan forgiveness may be an option if you have a federal loan and are pursuing a career in the public service. To qualify, you must make 120 eligible loan payments, work for an eligible employer, and be enrolled in an income-based repayment plan.

11. Income-based reimbursement

When you borrow a federal loan, you have the option of choosing between several repayment plans, including income-based repayment.

With income-based repayment options, your monthly payments are based on your household size and your discretionary income. These plans can give you more time to pay off your loans and potentially lower your monthly payment, but you could end up paying more interest in total over the life of the loan.

HOW TO RECERTIFY YOUR INCOME-BASED REPAYMENT PLAN

12. Adjournment

Deferral allows you to temporarily suspend payments on your federal student loans. During this time, no interest accumulates on your loans and no payments are due.

STUDENT LOAN DEFERRED VS. TREND: WHAT’S THE DIFFERENCE?

13. Tolerance

Forbearance and deferral are similar terms for repaying student loans. Taking a forbearance also allows you to temporarily suspend payments.

The difference is that interest can still accrue on your loans, which means that when you resume repayment, your loan balance may be higher.

14. Delinquency and default

Delinquency means you’ve fallen behind on federal or private student loan payments. Being in default means you haven’t made payments for an extended period of time.

If you don’t repay your federal student loans, you may be able to remedy the situation by rehabilitating your student loans. With private student loans, you will need to connect with private lenders to see what options are available.

Keep in mind that with either type of loan, delinquency and default can negatively affect your credit score. This could make it more difficult to refinance student loans.

CAN YOU REFINANCE A DEFAULT STUDENT LOAN?

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