Financial Aid Jargon Handbook

Do you speak financial aid? Probably not – and that is OK! That’s why this handbook exists. Whether you are a student or parent, browse these terms to get a better understanding of financial aid.

Borrower: Person responsible for repaying a loan who has signed and agreed to the terms in the promissory note. Also see Loan Programs.

Budget: Estimated cost of attendance to go to school. Usually includes tuition, books, supplies, living expenses, transportation and other miscellaneous expenses.

Campus Based Aid: Federal College Work Study (FWS), Perkins Loan, and SEOG Grant.

Capitalization: When interest is added to the loan's principal balance and future interest is calculated on the balance including the capitalized interest. A student who defers the interest on their unsubsidized Stafford loan needs to understand this term and how it affects the amount they must repay: it adds up quickly.

Central Processing System (Federal Processor): This is where the FAFSA is processed.

Collection Costs: Costs the government incurs when collecting a delinquent or defaulted loan. These costs are charged to the borrower.

Cost of Attendance: See Budget.

Default: Failure to repay a loan in accordance with the terms of the promissory note.

Deferment: The temporary postponement of loan payments.

Delinquency: Incidents of late or missed loan payments, as specified in the terms of the promissory note and the selected repayment plan.

Direct Loan Consolidation: One or more federal education loans combined into a single loan under the Direct Loan Program. Only one monthly payment is made to the U.S. Department of Education.

Direct Loan Servicing Center: The place where Direct Loan borrowers send their loan payments. The Servicing Center can answer questions you might have about your Direct Loan. The toll-free telephone number is 1-800-848-0979.

Disbursement: Once all financial aid is released, it is applied to the student's account. If the amount of aid received is larger than the student's tuition, fees, and other costs, the campus will give (or disburse) the remainder to the student. 

Discharge (cancellation): The release of borrowers from their obligations to repay their Direct Loans. Borrowers must meet certain requirements to be eligible for discharges.

Disclosure Statement: Statement that is sent to the borrower of a student loan outlining the actual cost of the loan including the interest rate, and any loan fees and estimated disbursement date(s).

Entrance Counseling: A group or individual session during which Direct Loan borrowers receive important information about their loan obligations. Entrance counseling is required before receiving the first disbursement of loan funds.

Exit Counseling: A group or individual session during which Direct Loan borrowers who are leaving school or dropping below half-time enrollment receive important information about their repayment obligations and update information about themselves. 

FAFSA Submission Summary (FSS): Students can review the information they submitted to the processing agency by logging into StudentAid.gov. This summary should be reviewed for accuracy. This was previously called the Student Aid Report (SAR).

Federal Direct Loan Program: The William D. Ford Federal Direct Loan Program, also referred to as the Direct Loan Program, is a federal program that provides loans to student and parent borrowers directly through the U.S. Department of Education.

Federal Direct Subsidized Loan: Formerly the GSL (Guaranteed Student Loan) Program; a federally financed and subsidized student loan made on the basis of the student's financial need and other specific eligibility requirements. The federal government does not charge interest on these subsidized loans while borrowers are enrolled at least half-time, during the six-month period, or during authorized periods of deferment. When repayment does begin, the interest rate of the loan depends on when the student first borrowed in the program.

Federal Direct Unsubsidized Loan: A federally financed student loan made to students meeting eligibility requirements. Students need not demonstrate financial need. Interest is charged throughout the life of the loan. The borrower may choose to pay the interest charged on the loan or allow the interest to be capitalized (added to the principal) when the loan enters repayment.

Federal Methodology: Federally-approved standardized formula to determine a student's financial aid eligibility.

Federal Supplemental Educational Opportunity Grant (SEOG): Grants to undergraduate students with exceptional financial need who have not completed their first baccalaureate degree.

Financial Aid: Financial aid is money to help pay for college or career school. Grants, work-study, loans, and scholarships help make college or career school affordable.

Financial Need (Need): The difference between the student's cost of attendance and the student aid index.

Forbearance: An arrangement to postpone or reduce a borrower's monthly payment amount for a limited and specified period, or to extend the repayment period. The borrower is charged interest for forbearance.

Free Application for Federal Student Aid (FAFSA): Federal form that a student must file in order to apply for any student aid except the Parent Loan. Students may apply online at https://studentaid.gov/h/apply-for-aid/fafsa. It must be completed every year a student wishes to receive aid.

Grace Period: A six-month period before the first payment must be made on a Direct Subsidized or Unsubsidized Loan. In the case of a federal Perkins Loan, the grace period may be six or nine months in length. The grace period starts the day after the borrower ceases to be enrolled at least half-time. During the grace period on a Direct Unsubsidized Loan, accumulating interest must be paid or it will be capitalized.

Graduated Repayment Plan: A plan that allows monthly payment amounts to start out at one level and then increase every two years during the repayment period. Borrowers have up to 30 years to repay, depending on the amount they borrowed. The minimum payment must cover interest that accumulates monthly and must be at least half of the payment that would be required under the Standard Repayment Plan. The maximum amount may not be more than 1-1/2 time the payment that would be required under the Standard Repayment Plan.

Grants: Often called “gift aid” because these funds are not typically paid back. There are different types of grants and many are administered by the federal government. Grant eligibility is determined by the student’s FAFSA. 

Income Contingent Repayment Plan: A plan that allows the monthly payment amount to vary with the borrower's income. A borrower has up to 25 years to repay.

Institutional Student Information Record (ISIR): The paper record that contains the information the student mailed to the Central Processing System.

Interest: A loan expense charged by the U.S. Department of Education and paid by the borrower for the use of borrowed money. The expense is calculated as a percentage of the principal amount (loan amount) borrowed.

Internal Revenue Service (IRS): The federal agency that collects and processes your tax returns.

Loan: Money borrowed that must be repaid.

Loan Principal: The total sum of money borrowed.

Merit Based: Awards and recognition (including scholarships) that are given in recognition of deserving or worthy accomplishment or achievement. 

Need Analysis: A system used to analyze the household and financial information and calculate an estimated family contribution.

Need Based: Financial aid that is available for those students whose financial need is demonstrated through the federal application process.

Overaward: Any amount of financial aid that exceeds financial need.

Parent Loan for Undergraduate Students (PLUS): Loan available to parents to help finance an education for students; not based on need. Also see Loan Programs.

PELL: Federal grant for which eligibility is determined by the SAI (student aid index) and cost of attendance.

Perkins Loan: A Federal loan given to students who have exceptional financial need. The interest rate is 5% and is not variable. Although this is a federal loan program, East Tennessee State University, not the Federal Government, is considered the lender. Learn more.

Prepayment: Any amount paid on a loan before it is required to be paid in the terms of the promissory note. There is never a penalty for prepaying principal or interest on Direct Loans.

Master Promissory Note: A legally binding contract between the U.S. Department of Education and a borrower. In this document, the borrower promises to repay the loan. The promissory note contains the terms and conditions of the loan, including how and when the loan must be repaid. 

Repayment Schedule: A statement provided by the Direct Loan Servicing Center to the borrower that lists the amount borrowed, the amount of monthly payments, and the date payments are due.

Satisfactory Academic Progress (SAP): Maintaining successful progress towards completing a degree based on GPA, PACE, and maximum hours.  

Scholarships: Sums of money that are given or “gifted” to students for the purpose of paying for college tuition and other college-related expenses. Scholarships do not have to be paid back and, therefore, are a very valuable type of financial aid. 

Standard Repayment Plan: A plan that requires a borrower to pay at least $50 a month and allows up to 10 years to pay.

Student Aid Index (SAI): An eligibility index that college financial aid staff use to determine how much financial aid you would receive if you were to attend their school. The SAI is calculated according to a formula specified in law and is based upon the information provided by the student and their family on the Free Application for Federal Student Aid (FAFSA). This was previously called the Expected Family Contribution (EFC).

USDOE, USED, ED or US Dept. of Ed: Terms used to denote the United States Department of Education.

Verification: Process of collecting documentation (tax returns, etc.) to ensure that information provided on the FAFSA application is accurate. 

Work-Study: A type of financial aid that allows students to work university-sponsored jobs and get paid for that work. The money for these programs comes from the federal government, but is distributed by each university in the form of the student’s paycheck. Federal College Work Study (FWS) is a part-time employment program which helps provide jobs for students who are in need of earnings to meet a portion of their educational expenses.