Student Loan Glossary: Plain-English Terms for Borrowing, Repayment, and Forgiveness
This student loan glossary translates borrowing, interest, repayment, forgiveness, delinquency, default, and 2026 federal program terms into plain English so you can understand the account before making a decision.
Part of the Complete EDG Student Loan Guide .
The short answer
- Loan type identifies the legal program; servicer identifies the company handling the account. They are not interchangeable.
- Accrued interest is unpaid interest that has accumulated; capitalization adds unpaid interest to principal.
- Consolidation creates a new federal Direct Consolidation Loan; refinancing creates a new private loan.
- Forgiveness, cancellation, and discharge all reduce debt under specific programs, but their eligibility and tax rules differ.
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Six Student Loan Terms People Commonly Confuse
The holder owns or is entitled to collect the debt; the servicer handles billing and administration.
Accrual is interest building up. Capitalization adds unpaid interest to principal after a qualifying event.
Federal consolidation creates a new Direct Consolidation Loan. Refinancing creates a private loan.
Both can end repayment obligations, but they apply through different programs and qualifying events.
Delinquency begins after a missed required payment; default is a more severe status after extended nonpayment or another default event.
AGI is a tax-return income figure. Discretionary income is a plan-specific repayment calculation used by IBR, not RAP.
Aid and borrowing terms
- Cost of attendance (COA)
- A school’s budget for tuition, fees, housing, food, books, transportation, and permitted costs. It limits total aid but is not necessarily the amount a family should spend.
- Expected family contribution (EFC)
- The former FAFSA index replaced by the Student Aid Index. Older records and articles may still use it.
- FAFSA
- The Free Application for Federal Student Aid used by schools and governments to determine eligibility for federal and other aid.
- Federal Direct Loan
- A loan made under the William D. Ford Federal Direct Loan Program, including Direct Subsidized, Unsubsidized, PLUS, and Consolidation Loans.
- Financial aid offer
- A school’s list of grants, scholarships, work-study, and loans. Loans are not discounts and do not have to be accepted in full.
- Grant
- Aid that generally does not require repayment when its conditions are met.
- Master Promissory Note (MPN)
- The legal agreement to repay a federal loan and follow its terms.
- Net price
- College cost minus grants and scholarships. Loans do not reduce net price because they must be repaid.
- Origination fee
- A fee deducted from a loan’s disbursement, so the amount received can be less than the amount owed.
- Student Aid Index (SAI)
- A FAFSA-based eligibility index used in aid calculations. It is not a bill, family payment promise, or exact aid award.
- Work-study
- Eligibility to earn wages through qualifying jobs; it is not usually an upfront credit against the school bill.
Federal and private loan types
- Direct Subsidized Loan
- A need-based undergraduate federal loan on which the government pays interest during specified qualifying periods.
- Direct Unsubsidized Loan
- A federal loan for which the borrower is responsible for interest from disbursement.
- Direct PLUS Loan
- A federal loan for eligible parents or, under applicable rules and dates, graduate or professional students, with adverse-credit review.
- Parent PLUS Loan
- A Direct PLUS Loan legally owed by the parent borrower for a dependent undergraduate’s education.
- Grad PLUS Loan
- A graduate/professional Direct PLUS category generally ended for new affected borrowing after July 1, 2026 outside transition rules.
- FFEL Program Loan
- An older federally backed loan made by a private or state lender. It can have different plan and forgiveness eligibility from a Direct Loan.
- Perkins Loan
- An older campus-based federal loan program with separate cancellation and consolidation considerations.
- Private student loan
- A nonfederal education credit contract from a bank, credit union, state-affiliated lender, school, or finance company.
- Cosigner
- A person equally obligated to repay a private loan if the primary borrower does not.
- Loan holder
- The entity that owns or is legally entitled to collect the loan. It can differ from the servicer.
- Loan servicer
- The company assigned to bill, process payments, and administer the account for the holder.
Interest and payment terms
- Annual percentage rate (APR)
- A consumer-credit cost measure that can include interest and certain fees. Compare private offers by APR and identical terms.
- Accrued interest
- Interest that has accumulated but has not been paid.
- Capitalization
- An event that adds unpaid interest to principal, causing future interest to be calculated from a larger principal.
- Daily interest
- A rough federal-loan calculation of principal × annual rate ÷ 365 for one day.
- Disbursement
- Loan funds sent to the school or borrower. Interest on an unsubsidized loan generally begins at disbursement.
- Fixed interest rate
- A rate that does not change during the loan’s term.
- Principal
- The amount borrowed or the current principal after repayment and capitalization events.
- Paid-ahead status
- An account treatment that advances a future due date after extra payment; it is not the same as directing all extra money to a target principal.
- Prepayment
- Paying principal before scheduled maturity. Federal student loans generally have no prepayment penalty.
- Variable interest rate
- A rate that can change using the index and margin in a private contract.
- Weighted average interest rate
- A combined rate that gives larger balances more influence than smaller balances.
Repayment-plan terms
- Adjusted gross income (AGI)
- An income figure from the federal tax return used in repayment formulas such as RAP.
- Deferment
- An approved temporary payment postponement under specific rules. Interest treatment depends on loan and deferment type.
- Discretionary income
- A plan-specific calculation based on AGI and a protected amount tied to poverty guidelines; used by IBR, not RAP.
- Forbearance
- An approved temporary pause or reduction in payments. Interest generally accrues and months may not count toward forgiveness.
- Income-Based Repayment (IBR)
- An income-driven federal plan using a percentage of discretionary income, an applicable cap, and a long-term discharge period for eligible borrowers.
- Income-driven repayment (IDR)
- A category of federal plans that calculate payments using income and household information rather than only balance and term.
- Qualifying payment
- A payment or credited month that satisfies the rules of a specific forgiveness or repayment program.
- Repayment Assistance Plan (RAP)
- The 2026 federal income-driven plan using one AGI-band percentage, a dependent reduction, a $10 minimum, unpaid-interest treatment, principal support, and 360 qualifying payments.
- Tiered Standard plan
- The 2026 fixed federal plan assigning a 10-, 15-, 20-, or 25-year term based on outstanding principal, generally with at least a $50 payment.
- Recertification
- The process of updating income and household information for an income-driven plan when required.
- Standard repayment
- A fixed-payment structure intended to repay the loan over a set term; the applicable term depends on the loan and current rules.
Forgiveness and loan-change terms
- Cancellation
- A term for ending some or all repayment obligation under qualifying service or other program conditions.
- Consolidation
- A federal process that pays off selected eligible federal loans with one new Direct Consolidation Loan.
- Discharge
- Release from repayment because of circumstances such as disability, death, school closure, misconduct, or completion of a long-term plan.
- Forgiveness
- Release from some or all remaining debt after meeting a program’s service or repayment conditions.
- Public Service Loan Forgiveness (PSLF)
- Federal forgiveness of a remaining eligible Direct Loan balance after 120 qualifying monthly payments while all employment and program conditions are met.
- PSLF buyback
- A limited official process that can allow payment for certain past deferment or forbearance months when current rules are met and the added months would complete 120.
- Refinancing
- Replacing debt with a new private loan. Refinanced federal debt permanently loses federal status and benefits.
- Total and Permanent Disability (TPD) discharge
- A federal discharge path for borrowers who satisfy an approved disability-evidence route and applicable conditions.
Delinquency, default, and collection terms
- Delinquency
- The status that generally begins when a required payment is missed.
- Default
- A more severe status after extended nonpayment or another default event; most monthly-payment federal loans generally default after about 270 days.
- Administrative wage garnishment
- A federal collection process that can withhold part of disposable pay for defaulted federal debt without an ordinary court judgment, subject to notice and hearing rights.
- Treasury offset
- Collection of defaulted federal debt from eligible federal payments such as tax refunds or certain benefits, subject to law and protections.
- Loan rehabilitation
- A one-time federal default-resolution route that generally requires nine agreed payments within ten consecutive months.
- Collection costs
- Charges that can be added when a loan enters collection, subject to the program or contract.
When a Student Loan Notice Uses a Term You Do Not Understand
Search the term here before relying on its everyday meaning.
Confirm whether the debt is federal or private and identify the specific loan type.
Do not confuse the loan holder with the company servicing the account.
Words like income, dependent, qualifying payment, forgiveness, and consolidation can have narrow federal meanings.
Use the linked EDG guide and official federal source before consolidating, refinancing, changing repayment plans, or submitting a forgiveness application.
How to use the glossary during a real decision
Circle every term you cannot map to an official account field. Then download the loan record and label each debt: federal or private, legal borrower, loan type, holder, servicer, principal, accrued interest, rate, plan, status, and forgiveness count.
When a letter uses a familiar word, read the program definition—not the everyday meaning. “Consolidation,” “forgiveness,” “income,” and “dependent” can mean something narrower than expected. Follow the linked EDG guide and official source before submitting an irreversible application.
Save this student loan glossary
Keep the plain-English definitions for federal loan types, interest, repayment plans, forgiveness, consolidation, refinancing, delinquency, and default handy.
Official sources used
Rules and dates can change. These primary sources were checked for this guide; confirm account-specific details with Federal Student Aid and your loan servicer.
Frequently asked questions
What is the difference between a loan holder and servicer?
The holder owns or is entitled to collect the debt; the servicer manages billing and account administration for the holder.
What is the difference between consolidation and refinancing?
Federal consolidation creates a new Direct Consolidation Loan. Refinancing creates a private loan and ends federal status for refinanced federal debt.
What is the difference between interest accrual and capitalization?
Accrual is interest accumulating over time. Capitalization adds unpaid interest to principal after a qualifying event.
Are forgiveness, cancellation, and discharge identical?
They all can end repayment obligations, but federal programs use the terms for different service, repayment, or circumstance-based paths with different rules.
Educational information only. This page does not provide legal, tax, investment, or individualized financial advice and cannot determine your eligibility, official payment, qualifying-payment count, or tax liability. Verify your loans, dates, and options through StudentAid.gov, your servicer, and a qualified professional when appropriate.
