Glossary of Loan Terms

Capitalization: The practice of adding unpaid interest charges to the principal balance of an educational loan, thereby increasing the size of the loan. Interest is then charged on the new balance, including both the unpaid principal and the accrued interest. Capitalizing the interest increases the monthly payment and the amount of money you will eventually have to repay. If you can afford to pay the interest as it accrues, you are better off not capitalizing it.

Cost of Attendance: The cost of attendance (COA), also known as the cost of education or "budget", is the total annual amount it should cost you to go to school. This amount includes tuition and fees, room and board, and allowances for books and supplies, transportation, and personal and incidental expenses. Butte College has different standard budget amounts for students living off-campus, with parents, and in-state or out-of-state.

Default: Failure to repay a loan according to the terms of the promissory note. A loan is in default when the borrower fails to pay several regular installments on time (i.e., payments overdue by 270 days) or otherwise fails to meet the terms and conditions of the loan.

Note: if you are in default, you may want to check out the Department of Education's Default web page.

Deferment: Deferment occurs when a borrower is allowed to postpone repaying the loan. If you have a subsidized loan, the federal government pays the interest charges during the deferment period. If you have an unsubsidized loan, you are responsible for the interest that accrues during the deferment period. You can still postpone paying the interest charges by capitalizing the interest, which increases the size of the loan. Most federal loan programs allow students to defer their loans while they are in school at least half time. If you don't qualify for a deferment, you may be able to get a Forbearance. You can't get a deferment if your loan is in default.

Delinquent: Any loan that is 59 days or less delinquent is reported to the credit bureaus as current. Any loan that is 59 or more days delinquent is reported as delinquent. Loans that are 270 days (or more) delinquent are considered to be in default.

Federal Default Fee: A fee paid to the Federal Reserve Fund to help offset the costs of defaulted loans.

First time borrower: A student who has not successfully completed the first year of a program of study in which he or she is currently enrolled and who has not previously received a Federal Stafford loan.

Forbearance: A borrower who is willing but unable to make payments, and who does not qualify for a deferment, may request a forbearance from the lender. Forbearance allows temporary cessation of payments or smaller payments for a specific length of time. The lender may grant forbearance of principal, interest or both. The borrower is always responsible for repayment of accrued interest charges. The borrower can make interest only-payments, or the interest will be capitalized (added on to the principal).You can't receive a forbearance if your loan is in default.

Grace Period: The grace period is a short time period after graduation during which the borrower is not required to begin repaying his or her student loans. The grace period will also kick in if the borrower leaves school for a reason other than graduation or drops below half-time enrollment. The grace period is for six months. If you return to an approved school during the six month grace period and attend at least halftime, your entire grace period is reinstated.

Guarantee Agency: The guarantee agency (sometimes called the guarantor) oversees the student loan process, including the approval of the loan, and the issuance of a guarantee to the lender that the student loan will be repaid if the borrower defaults (does not repay the loan). A guarantee agency also provides public information about student loans, keeps permanent records of all loans made through it, enforces state and federal rules, and collects on defaulted loans.

Loan Consolidation: An entirely new loan combining the repayment of two or more student loans, reducing the amount of monthly payments and extending the loan term.

Master Promissory Note: The loan application. A legally binding document, signed by the borrower, listing the terms and conditions of borrowing and repayment of the loan.

Origination Fee: A fee paid to the federal government to help run the Federal Stafford loan programs.

PLUS Loans: Federal loans made by commercial institutions that are designed to help parents meet the cost of a college education for their dependents.