Glossary of Basic Loan Terms
What's Next?

Listed below are the definitions of some basic loan terms that will help you to understand the loan summaries that are provided in this section.

  • Capitalization - The practice by lenders of adding any accrued (accumulated) and unpaid interest to the principal of a borrower's loan, which increases the loan balance and causes the principal to grow significantly.
  • Default - Usually occurs when a borrower is 180-270 days late in making a payment and is also reported to all credit bureaus (such a report remains on the borrower's credit report for up to seven years).
  • Deferment - A period of time when the borrower is not required to make any payment on the loan (similar to a grace period); however, the borrower must apply annually for a deferment which can be loan specific (tied to the terms of the promissory note) or borrower specific (tied to the date that the borrower received the first disbursement of a Federal Stafford/Direct loan).
  • Delinquency - Occurs when a borrower is late in making payments on a loan obligation and is reported to credit bureaus (such a report remains on the borrower's credit report for up to seven years).
  • Fixed interest rate - An interest rate that remains the same throughout the life of the loan.
  • Forbearance - A period of time (six months to no more than one year at a time) when 1) a borrower is not required to make payment on the loan, or 2) the scheduled payment will be reduced. Interest accrues on all loans during forbearance.
  • Grace period - A period of time when the borrower is not required to make payment on the loan (length of time is tied to the terms of the promissory note).
  • Institutional loan - The Emergency Loan Program (ELP) loans offered to students at Southern College of Optometry based on a variety of criteria that may or may not include financial need.
  • Interest cap - A set limit on the interest rate (e.g. the interest rate cannot exceed 8.25% for the Federal Stafford/Direct loan).
  • Loan fees - Costs associated with the processing and collection of the loan that are usually deducted from the loan prior to disbursement and vary according to the type of loan.
  • Private loan - Usually an unsubsidized loan that is not insured and is used to supplement other less expensive loan programs (also referred to as an alternative loan).
  • Subsidized loan - Loans that have no interest cost to the borrower during school, the grace period, and any deferment periods for which the borrower might qualify.
  • Unsubsidized loan - Loans that begin to accrue interest immediately upon disbursement. The interest that has accrued and is unpaid is eventually capitalized.
  • Variable interest rate - An interest rate that changes periodically (i.e. annually, semi-annually) throughout the life of the loan.