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Glossary of Financial Terms

The following is a list of consumer finance terms and definitions. Not all of them relate to student loans. However, a familiarity may be helpful in future financial transactions.

Accrued Interest​

Interest which accrues on the loan and is payable by the borrower or federal government. Interest is calculated on the unpaid principal balance and becomes “accrued interest.”

Capitalized Interest

Unpaid interest amounts that are added to the principal amount borrowed; the total becomes the new principal balance.


Combining one’s loans by the process of selling and transferring all loans to one holder. This usually extends repayment over a longer period of time and lowers the total monthly payment.


A second credit-worthy party who is required to sign a promissory note for a loan with a borrower who has no collateral or credit history; this party, by signing, guarantees that the loan will be repaid if the borrower defaults.


The failure of a borrower to make an installment payment when due, or to meet other terms of the promissory note, and it is reasonable to conclude that the borrower no longer intends to honor the obligation to repay.


An approved postponement of payment for a specified period.


The borrower fails to make an installment payment when due, or to meet other terms of the promissory note.

Disclosure Statement

Statement of the actual cost to the borrower of a loan, that is, the interest rate and any additional finance charges. This must be presented to the borrower by the lender. It lists details of the repayment agreement, where, when, and what size installments will be owed, interest terms, types of credit insurance, and other items relevant to the loan.

Economic Hardship

A borrower situation involving financial difficulty, under which the borrower may be granted a deferment or forbearance.

Fixed Interest

Rate of interest that does not change during the life of the loan, is determined at the time that the loan is negotiated, and is given in the disclosure statement and the promissory note.


A temporary postponement or reduction of payments, approved in advance by the lender, for a borrower who experiences financial hardship. Usually interest accrues and is the borrower’s responsibility to pay during the period of forbearance.

Grace Period

A period of time, normally a 6, 9 or 12-month period, before the borrower enters repayment.


The price paid or fee charged for the use of borrowed money, computed as a percentage of the principal borrowed for a given period of time.

Maturity Date

The date upon which a promissory note becomes due and payable.

Net Income

Earnings from wages after required withholding of federal and state income taxes and social security benefits, and other voluntary withholdings.

Origination Fee

A fee charged to the borrower on a guaranteed student loan to offset the cost of administering the program. It is also charged on some private loans. It is deducted from the loan proceeds.


The face value of the loan; the amount upon which interest is charged.

Promissory Note

A written promise to pay a sum of money to a specified person or holder for a certain time period.


The entity designated to track and collect a loan on behalf of the holder.

Simple Interest

Interest calculated on the original principal only.

Subsidized Loan

Interest costs during school years and qualifying deferment periods are paid (subsidized) by federal funds. No interest is charged to the student during qualifying deferments.

Unsubsidized Loan

Interest accrues from othe date of disbursement; borrower is responsible for repayment of all interest costs to lender.

Variable Interest

Rates of interest that are tied to a certain index (depending on the loan) and change periodically as the index changes.