Key Terms to Know about Student Loans

If you are new to borrowing student loans, or just need a refresher on some key terms, we have you covered. We've outlined phrases and acronyms below that you should be sure to know before you submit a student loan application.

Interest Rate

The interest rate is the percentage of the loan amount charged to the borrower for the use of funds. The interest rate can be fixed, meaning the rate remains constant for the lifetime of the loan and the monthly payment amount will never change, or variable, meaning the rate and the monthly payment could change on a regular basis.

Annual Percentage Rate (APR)

The APR reflects the total annual cost of borrowing money over the life of a loan, expressed as a single percentage number. This means it takes into account not only the interest rate charged, but also how long it will take to pay back the loan, and any fees required within the payment.

Co-Borrower

Most students don't have the credit necessary to be approved for a loan on their own and need a co-borrower to be approved. A co-borrower signs the loan paperwork with the student and is equally responsible for repayment.

Loan Certification

Within the student loan approval process, colleges must certify loans before the funds can be disbursed into the student's account. During loan certification, colleges confirm the student's enrollment, that the amount requested does not exceed the school's Cost of Attendance minus any financial aid the student received, and that the student is making Satisfactory Academic Progress. Schools can certify the loan as is, or they can certify it with changes.

Master Promissory Note (MPN)

An MPN is a legally binding document that a student must sign prior to borrowing a Federal Direct Student Loan. The MPN contains the terms and conditions of the loan program, and in most cases, a student can sign a single MPN electronically on StudentAid.gov to cover all of the loans that they borrow for undergraduate and graduate studies up to a period of 10 years. Signing an MPN is a promise to repay a loan along with any accrued interest and fees.

Tiered Pricing

Tiered pricing refers to a lender assigning an interest rate to a borrower based on the borrower's credit. Borrowers with strong credit receive a lower interest rate than borrowers with poor to fair credit.

Entrance Counseling

Entrance counseling is a comprehensive tutorial focused on the important details of loan borrowing and repayment. All borrowers of Federal Direct Student Loans must complete entrance counseling in order to receive their loan funds. A majority of schools allow students to complete entrance counseling online, most using StudentAid.gov.

Deferred Repayment

Deferred repayment refers to a loan arrangement in which the borrower is allowed to start making payments after a specified period of no payments being due. With deferred repayment, monthly repayments generally don't begin until the student graduates or leaves school. It is important to note, however, that for most private loans, interest begins accruing soon after the loan is borrowed.

Loan Agreement

When applying for a private student loan, borrowers will need to sign a loan agreement. A loan agreement is a legally binding contract between the borrower(s) and the lender that states the terms of borrowing the loan, including the amount to be repaid, the interest rate, and any other conditions. All parties on the loan will need to sign the loan agreement. Loa agreements must be signed for every loan borrowed.

Final Disclosure

When students borrow a loan to pay for college, the lender must provide a final disclosure once the loan is finalized. The statement includes pertinent loan details, including the amount borrowed, the interest rate, any fees, and how much the loan will end up costing in total.

Repayment Term

The repayment term specifies the length of time to repay a loan. Repayment term is typically expressed in number of years (for example, 7, 10, or 15 years). The repayment term has a direct impact on the total cost of the loan. Assuming the interest rate is the same, the longer the repayment term, the more you will pay over the life of the loan, though the monthly payment may be lower.