If you’re a newbie on student loans, you’ll encounter a lot of financial jargon along the way. You need to familiarize yourself with these terms to help you make wise decisions when considering a loan. Here are some commonly used terms in student loan applications.
Annual Percentage Rate (APR). This is your interest rate calculated on a yearly basis. It also takes into consideration other fees and deferment options. APR doesn’t determine the rate by which the interest increases.
Capitalized Interest. This is the amount of outstanding unpaid interest added to the principal which consequently results to increased monthly payments.
Cost of Attendance (COA). This is the total amount of expenses you need to cover for an entire school year. This includes tuition fees, food and board expenses, clothing and transportation allowances, books and supplies, and other personal expenses. Your financial aid administrator can help you assess accurately your annual COA.
Deferment. This is the postponement of loan payment with no accruing interest if the loan is subsidized. You can be qualified for deferment if you’re enrolled half-time during the semester and if you’re serving the U.S. Armed Forces or the National Guard.
Direct Loan. These are student loans made directly to the U.S. Department of Education. Known as the William D. Ford Federal Direct Loan, this includes both subsidized and unsubsidized Direct Stafford Loans, Direct PLUS loans, and Direct Consolidation Loans.
Half-time. This is the way schools measure progress in credit hours. Half-time is roughly six semester hours per term or 12 semester hours per year.
Financial Aid Package. The total financial assistance a student is eligible to receive as stated in the financial aid award letter including scholarships, grants, federal loans, and school-specific loans. However, private student loans are not included in this package.
Interest rates. This is the amount you have to pay to your lender on top of the principal amount you loaned. It is calculated as a percentage of the unpaid loan. Student loan interest rates vary, depending on the lender. Federal loans usually have a fixed interest rate while private student loans have variable interest rates.
Principal. This is basically the money you owe to your lender may it be from the federal government or a bank. Determining the right principal amount to loan is crucial because interest rates and repayment terms will be based from there.
Prime Rate. Wall Street Journal defines this as the interest rate banks extend to their creditworthy clients.
Private Student Loan. These private student loans are offered by banks and other lenders to supplement the financial aid given by the federal government. Sometimes when direct loans are not enough, students resort to private loans to cover for other fees. Always go for big banks with reliable student loans which not only have variable interest rates but also graduation rewards and debit incentives.
You can also consult your school’s financial aid administrator if you need more clarification on some of the terms and clauses involved in applying for a loan. Just take it one step at a time. Learn the basics, ask questions, take your time, plan ahead, save up, and be proactive. Applying for student loans has never been this easy with all the assistance coming from the schools, the government, and the private sector.
For more information on student loans visit http://studentaid.ed.gov/PORTALSWebApp/students/english/index.jsp.