Glossary of Terms

APR

The Annual Percentage Rate, or APR, is the interest rate that results from including the nominal (advertised) interest rate and other factors that affect the cost of borrowing, such as the repayment schedule, repayment options, fees, etc. The true APR quoted for a variable rate loan cannot actually be known until after the final payment is made. The APR quoted reflects current economic conditions.

Borrower

The person legally responsible for repayment of a loan and who has signed the promissory note.

Cap

The maximum allowable interest rate that can be charged in a variable interest rate loan program regardless of economic fluctuations.

Capitalized Interest

Unpaid, accumulated interest that is added to the loan principal. Because the principal increases, so does the total cost of the loan.

Co-borrower

The person who applies for a loan with and signs a promissory note agreeing to be responsible for repayment if the borrower fails to meet the terms of repayment. This person’s creditworthiness may make the borrower eligible for a lower interest rate, lower fees, and/or other more favorable terms.

Consolidation

The combination of several federal educational loans into one new loan to simplify loan repayment.

Credit-based Loan

A loan offered on the basis of the creditworthiness of the borrower.

Default

Failure to repay a loan in accordance with the terms of the promissory note.

Deferment

The temporary postponement of loan payments; during this time, the borrower may not have to pay either principal or interest.

Delinquency

Failure to make payments when due, as specified in the promissory note and in the selected repayment plan. Delinquency can lead to default and an adverse credit history.

Disbursement

The process of sending the proceeds of an educational loan to Boston University Student Accounting Services, usually at the start of each semester.

Federal Direct Loan Servicer

A company that handles billing, processes payments, deferment and forbearance requests and performs other services on behalf of the U.S. Department of Education for your Federal Direct Loans. Your loan is assigned to a loan servicer by the U.S. Department of Education after the first disbursement has been paid out.

Forbearance

Temporary postponement or reduction of payments, or extension of the repayment period, because of the borrower’s financial difficulties. Interest accrues during forbearance.

Financial Need

The total cost of education for the academic year, minus the calculated expected family contribution.

Family Share

The total cost of education for the academic year, minus the total financial aid for the year.

Fixed Interest Rate

An interest rate that is set for the life of the loan.

Interest

A loan expense charged a borrower for the use of borrowed money. Interest is calculated as a percentage of the principal of the loan, which includes the original amount borrowed and any capitalized interest.

LIBOR Index

The London Interbank Offered Rate Index (LIBOR) is an average of the interest rates that major international banks charge each other to borrow U.S. dollars in the London money market.

Prepayment

Any amount the borrower pays before it is required to be paid under the terms of the promissory note.

Principal

The total sum of money borrowed. Loan principal includes the original amount borrowed plus any interest that has been capitalized.

Promissory Note

A binding legal contract between a loan holder and a borrower. The promissory note stipulates the loan terms and conditions, including how and when the loan must be repaid. By signing this note, the borrower formally agrees to repay the loan.

Repayment Schedule

A statement the loan holder provides the borrower that lists the amount borrowed, the amount of monthly payments, and the date payments are due.

Subsidized Federal Stafford Loan

A federal student loan made on the basis of the borrower’s financial need and other specific eligibility requirements. The federal government pays the interest on subsidized loans while the borrower is enrolled at least half time, during the grace period, or during periods of deferment.

Unsubsidized Federal Stafford Loan

A federal student loan made to a borrower meeting specific eligibility requirements, but not based on financial need. The borrower is responsible for paying all interest that accrues throughout the life of an unsubsidized loan. During in-school status, deferment, and forbearance periods, the borrower may choose to pay the interest charged on the loan or allow the interest to be capitalized.

Variable Interest Rate

An interest rate that fluctuates with market conditions. Loans with variable rates usually have the rate linked to a standard index, such as the U.S. Treasury bill rate, the prime rate, or the LIBOR rate, etc.