Financial Aid Definitions for college applications

CSS Profile – Stands for College Scholarship Service Profile. This is a financial aid form run by the college board that is used at 600+ private colleges. The CSS Profile form is much more invasive than the FAFSA form and asks for more specific financial data such as home value and retirement plan contributions. Unlike the FAFSA that only seeks financial information from the custodial parent, the CSS form asks for financial information from both parents, regardless of marital status.

Grants — a type of financial aid award that does not have to be repaid.

Scholarships — a financial aid award that does not have to be repaid. Scholarships are generally made based on an applicant meeting certain eligibility criteria and can be for athletic, academic or even some other talent such as music, art, or dance.

Work Study (aka) Federal Work Study — Federally funded program that allows colleges and universities to create campus based employment programs for financial aid recipients.

Merit Aid – Merit aid is a financial reward given to a student from a college based on their academic record and/or some other unique talent that the student possess (perhaps you are a classical pianist that plays all over the world at age 17). Merit aid is used by colleges as an incentive to get those students to enroll in their college. Merit aid does not have to be paid back.

The Free Application for Federal Student Aid (FAFSA) — the official application form for all federal financial aid programs.

Federal Pell Grant — a need based financial aid program funded by the federal government. Students with an EFC less than $x are eligible for the Pell Grant. The amount of the award is based on the student’s enrollment level (full time, three-quarter time, etc.) and the cost of attendance.

Federal Supplemental Education Opportunity Grant (SEOG) — a need based financial aid program funded by the federal government. Colleges receive an annual allocation of SEOG and, within certain guidelines, develop an awarding policy for this fund.

Federal Family Education Loan Program (FFELP) — The collective name for the Federal Stafford and PLUS loan programs. FFELP loans are funded by private lenders.

Federal Direct Student Loan Program (FDSLP) — The program name for loans that are both guaranteed and funded by the federal government.  If your school is a “Direct Lending School”, your Stafford Loan is administered by the Federal Direct Student Loan Program (FDSLP). Funds for “direct loans” are provided by the US government directly to students and their parents through their schools. Applications can be obtained from your school.  Banks and guarantee agencies are not involved in the process.

Expected Family Contribution (EFC) — the amount that a student and family can be expected to contribute towards educational expenses over a year’s time. The EFC is calculated when the student submits a financial aid application.

Federal Methodology Expected Family Contribution (FM EFC) — The specific EFC calculated by the federal government based on information submitted on the FAFSA. The FM EFC calculation is set each year by the U.S. Department of Education and determines eligibility for federal aid programs.

Institutional Methodology Expected Family Contribution (IM EFC) — a variation of the FM EFC calculated by a college or university. This EFC calculation can incorporate different items than the FM EFC calculation and is used by colleges to allocate institutionally sponsored aid programs.

Financial need — the difference between a student’s Cost of Attendance and Expected Family Contribution. It is the amount of financial aid the student “needs” to afford attendance at a particular college.

Cost of Attendance — the total of all costs a financial aid office estimates students will incur during attendance at the college or university

Award Letter — A notice from a financial aid office to a financial aid applicant that specifies the financial aid programs and dollar amount of a each financial aid award.

Cost Less Aid Amount — The difference between the total cost of education and the financial aid package offered to you by the school, including scholarships, grants, work-study and Stafford Loans.  This amount is what you are expected to pay out of pocket or through supplemental loan programs.

Federal Stafford Loan — a federally guaranteed loan program that allows students to borrow funds from lenders. Stafford loans allow the student to defer payments while he/she is in school. The interest rate for new Stafford Loans is variable but will not exceed 8.25%.

Subsidized Stafford Loan — this is a need-based student loan. Interest that accrues on Subsidized Stafford loans while the student is in school (at least half time) is paid by the federal government on the student’s behalf.

Unsubsidized Stafford Loan — the Unsubsidized Stafford Loan is a non-need based loan program, so students with no financial need can even qualify for this aid program. Interest that accrues on Unsubsidized loans must be paid by the borrower, even while he/she is in school. The borrower may make periodic payments (monthly or quarterly, depending on the lender’s policy) or allow the interest to accrue throughout enrollment and have the interest “capitalized” (added to the loan’s principle balance). While capitalization eliminates having to make payments while in school but increases the total cost of a loan.

Federal PLUS Loan — a federally guaranteed loan program that allows parents to borrow funds to help pay educational expenses. The program does require the borrower to pass a simple credit check. The loan’s interest rate is variable, but new loans have a maximum interest rate of 9%.

Promissory Note — legal document that specifies the terms and conditions of a loan.

Deferment — A temporary period during which a borrower is not required to make payments.  Deferments are more common in Federal loan programs rather than alternative loans. For Subsidized Stafford Loan borrowers (and Perkins Loan borrowers), many deferments are subsidized, meaning the interest that accrues on the loan during the deferment is paid by the federal government. Some deferments are unsubsidized, meaning the interest that accrues must be paid by the borrower. (Resources on the web from the department)

Origination fee — A fee the borrower pays to the lender for originating a student loan.  Origination fees are most often associated with Federal Stafford, PLUS and Federal Direct Student loans.  The maximum origination fee for these federal loans is 3% of the loan’s principal balance.

Debt to Income Ratio — The percentage of a loan applicant’s (monthly) income that is used to meet debt obligations.  Many alternative loan programs use this calculation to determine an applicant’s eligibility for a loan program.

Standard Repayment — A repayment alternative in which a borrower pays a set amount monthly over the entire repayment term.  Also called “Simple Repayment”.

Income Sensitive Repayment — This repayment alternative is available to some federal loan borrowers (check with your lender or servicer to learn if your loans qualify for this alternative).  Income sensitive repayments bases the monthly payment on the borrower’s income in relation to total federal loan indebtedness. Under this option, monthly payments can drop to as low as the amount of interest that accrues on the loan’s principal balance.  Borrowers must apply for this option annually and must provide documentation of income – usually in the form of a federal tax return.

Extended Repayment — a new option to recent federal loan borrowers.  This option allows borrowers with high balances (greater than $25,000 in federal loans) to extend the repayment term from its standard 10 year term to 25 or 30 years.  While extending the repayment term reduces the loan’s monthly payment, it also increases the total amount of interest paid on the loan.

Graduated Repayment — This option is available for federal loans, and even some alternative loan providers offer graduated repayment. Under graduated repayment, payments are low (usually just enough to cover the loan’s accruing interest) when the borrower first enters repayment.  Periodically, the payments increase to pay off the loan in the standard 10 year repayment term. The idea of graduated repayment is to have low payments while a borrower is first entering the working world.  Then, as income increases, the student loan payments also increase.