School Loan Consolidation: Terms You Need to Know

When considering the option of student loan consolidation, you'll need to do some research in order to determine whether that repayment option is the right one for you.

Below is a list of common terms related to consolidating student loans that you'll encounter along the way.

Common Student Loan Consolidation Terms:

• Academic Year: A one-year period between July 1 and June 30.
• Amortization: The gradual reduction of loan debt resulting from periodic payments of both principal and interest.
• Borrower: The person responsible for repaying a loan. Working with the lender, this person signs and agrees to the terms in the promissory note.
• Default: Failure to repay a loan according to the terms of the promissory note. The borrower's failure to repay a loan must persist for 270 days before going into default.
• Deferment: A period of time during which a borrower is not required to make payments toward a loan. During this time, interest on the loan does not accrue.
• Fixed Interest: Loan interest rates that will not change during the loan's lifecycle.
• Forbearance: A postponement of loan payments. This type of postponement is typically granted when a borrower is unable to make payments but does not qualify for a deferment. During this time, interest on the loan does accrue.
• Grace Period: A six-month period of time before the first payment on a Stafford loan is due. This period of time starts the first day after a borrower discontinues enrollment as a full-time or part-time student.
• Graduated Repayment Plan: This repayment option is available for federal loans and for some alternative, or private, loans. Under graduated repayment plans, payments begin low and then periodically increase over the 10-year repayment term.
• Income Sensitive Repayment: This repayment option is available for some federal loan borrowers. Under income sensitive repayment plans, monthly payments are determined based on the borrower's income in relation to his or her total federal loan indebtedness.
• Interest: The expense a borrower pays on top of the original principal.
• Lender: The bank or lending institution that grants the student loan.
• Prepayment: The act of paying off a loan ahead of schedule.
• Principal: The original loan amount plus any accrued interest.
• Private Loan: Also called alternative loans, private loans are non-government loans offered by banks, credit unions and other lenders. They are not based on financial need, but rather on your creditworthiness and ability to repay.
• Promissory Note: A legally binding contract between a lender and a borrower. The promissory note contains a loan's terms and conditions, including how and when the loan must be repaid.
• Repayment Period: The period during which a borrower is obligated to make payments on his or her loan.
• Subsidized Loan: A loan for which the borrower is not responsible for the interest while the student is still in school, during the grace period, or while the loan is in deferment.
• Unsubsidized Loan: A loan for which the borrower is responsible for paying the interest on the loan regardless of the loan's status.
• Variable Interest: Interest rates that can fluctuate during a loan's lifecycle.

If you are still confused and have questions, see if they have been answered in our frequently asked questions section.