Understand and Manage Your Loans

Useful Terms

To view a comprehensive glossary, visit Federal Student Aid.

Capitalization

Unpaid interest added onto the loan balance after certain events. Capitalization increases loan’s principal balance and interest is charged on the new, larger balance.

Consolidation

The process that allows borrowers to combine several federal student loans into one larger loan. This may add to the overall cost of the loan.

Default

A borrower can be declared in default if a payment has not been made in more than 270 days. Once in default, the entire balance of the loan becomes immediately due. This is called acceleration. Collection action can begin through wage garnishment or withholding federal tax payments.

Deferment

A period during which repayment of a loan principal is temporarily postponed, typically due to enrollment in school, economic hardship, or military service, and during which interest doesn’t accrue on subsidized loans.

Delinquency

When a federal student loan has one or more missed payments fewer than 270 days late (federal loans). At the 90-day mark, federal loan servicers report late payments to the 3 major credit bureaus.

Forbearance

A temporary pause or reduction in loan payments granted by the lender due to financial hardship, illness, or other qualifying circumstances.

Interest

The amount of money a lender or financial institution charges for allowing customers to borrow money. Student loan interest is set by Congress and accrues daily.

Student loan servicer

The company that collects payments on a loan, responds to customer inquiries and performs other administrative tasks associated with a student loan. The servicer is the borrower’s main point of contact. A loan may be transferred to several servicers throughout the life of the loan.

Subsidized Loan

A federal loan only available to undergraduate borrowers that is based on financial need. Interest does not accrue on subsidized loans while a borrower is in school or during grace periods or deferments.

Unsubsidized Loan

A federal loan that does not require borrowers to show financial need. These are available to undergraduate and graduate school students. Interest accrues while borrower is in school and is added to the principal balance if not paid each year. Many borrowers have both subsidized and unsubsidized loans.