20 Student Loan Terms You Need to Know

Quick Answer

Whether you're in school and applying for student loans or working to pay down your college debt, there are several terms you may come across. Here's a list of the 20 most common student loan terms and their definitions.

A college student wearing a gray shirt smiles while taking notes on her textbook.

Student loan debt reached a record high in 2021, according to Experian data, with Americans carrying $1.6 trillion in educational loans.

Whether you're about to take out student loans to pay for school or you're currently paying off your college debt, understanding the common terms attached to student loans can help you better manage your loans, obtain relief and avoid some of the negative consequences that can happen if you're not cautious.

20 Common Student Loan Debt Terms

Depending on your situation and your plans for paying down your student loans, you may or may not need to be aware of every program that's available to borrowers. However, knowing what's available and what the different terms mean can help you make better decisions both in school and after graduation.

Here are some of the most frequent terms you'll come across with student loans:

Capitalization

During periods of deferment or forbearance, interest may continue to accrue on your student loans. Capitalization happens when you begin or re-enter repayment and the accrued interest is added to your principal balance. This increases your overall loan amount and monthly payments.

Consolidation

The federal consolidation program allows borrowers to combine multiple loans into one new one, either with their current loan servicer or with a new one. Consolidation can simplify your life by reducing the number of monthly loan payments to one and can also give you access to certain federal programs you didn't have access to before.

Cosigner

If you're applying for a private student loan, your approval odds and interest rate are based on your creditworthiness. If you haven't had the chance to build your credit history or your score is in poor shape, having a cosigner can help you get approved. Your cosigner, who should have a solid credit history, takes responsibility for paying back the loan if you can't.

Cost of Attendance (COA)

When taking out student loans, you may be limited to borrowing the total cost of attendance minus other financial aid you've received. This amount typically represents the total costs a student will pay to attend the school for a year.

Default

If you fail to pay your federal student loans for 270 consecutive days, you'll be considered in default and must pay the full amount due plus interest, fees and collection costs. Fortunately, it's possible to get out of default through consolidation or rehabilitation. If you have private student loans, default can occur much sooner, and you may not have as many options for relief.

Deferment

Federal student loan servicers and some private lenders allow you to defer monthly payments on your student loans while you go back to school or experience financial hardship. Review your deferment options and their requirements to see if you're eligible, as deferment rules can vary by lender.

Dependent Status

When you fill out the Free Application for Federal Student Aid (FAFSA), your dependent status will determine how your school's financial aid office calculates your financial aid. If you're considered to be financially dependent on your parents, their financial information will be taken into consideration. But if you're considered independent, only your financial information is required.

Discretionary Income

Income-driven repayment plans base their monthly payment on your discretionary income. This figure is based on the federal poverty guideline, where you live, your household size and your annual income. Three of the four plans use 150% of the poverty guideline as a reference, but for the income-contingent repayment plan, it's just 100%.

Federal Student Loan

These are loans originated by the U.S. Department of Education and serviced by private companies that contract with the federal government. Federal student loans have standardized interest rates, don't require a credit check and come with many benefits that private student loans don't offer.

Forbearance

If you're experiencing financial hardship, you may be able to obtain forbearance, which pauses your monthly payments, typically for a few months at a time. Review your lender or loan servicer's forbearance options and criteria to see if you qualify.

Grace Period

After you graduate, leave school or drop below half-time enrollment, the federal government and many private lenders give you a grace period of six months before you need to start making payments on your student loans.

Income-Driven Repayment

The federal government offers four income-driven repayment plans, which reduce your monthly payment to a percentage of your discretionary income. These plans also extend your repayment term to 20 or 25 years, depending on the plan. Once that term is over, any remaining balance will be forgiven.

Loan Fee

Federal student loans come with an upfront loan fee that's deducted from your disbursement. It's relatively low for direct loans but higher for direct PLUS loans.

Private Student Loan

Private student loans are issued by private lenders, which include banks, credit unions and online lenders. Private loans require a credit check, and your interest rate will be based on your creditworthiness. They're generally best used if you're ineligible for federal student loans or if you've maxed out your allotment of federal loans.

Refinance

After you graduate, you can refinance your student loans with a private lender. Depending on your situation, you may be able to secure a lower interest rate and more flexibility with your repayment plan. However, refinancing federal loans will cause you to lose access to certain benefits, including access to income-driven repayment plans and forgiveness programs, that are only offered on federal student loans.

Rehabilitation

If you've defaulted on your federal student loans, you can bring them out of default by rehabilitating them. This process requires you to make nine voluntary, affordable monthly payments within 10 consecutive months—the payment amount is determined by your loan servicer. Once you've completed the process, your loans will no longer be in default, and the default notation will be removed from your credit reports.

Subsidized Loan

Undergraduate students who exhibit financial need may be eligible for federal subsidized student loans. With these loans, the federal government will pay your interest while you're still in school and during future periods of deferment. This program prevents interest from accruing and capitalizing.

Student Loan Forgiveness

The federal government offers various student loan forgiveness programs for public servants and teachers. Additionally, your loans may be forgiven if you've been defrauded by your school, if you experience a total and permanent disability, or if you die. In rare cases, discharge is also available through bankruptcy. Note that the Teacher Loan Forgiveness Program forgiveness amount can vary by applicant, while the other programs offer full forgiveness.

Student Loan Repayment Assistance

Many federal and state programs are available to help federal student loan borrowers pay down their debt. Depending on the program, you may be able to get thousands or even tens of thousands of dollars in assistance. These programs are designed to help military members, health professionals, public defenders, teachers and more. Additionally, many private companies offer student loan repayment assistance as an employee benefit.

Unsubsidized Loan

These federal loans don't offer the benefit of the government paying your interest while you're in school and during deferment periods.

Use Your Student Loans to Build Credit

Whether you're a student or a recent college graduate, you can use your student loans to build credit and establish and maintain a good credit score.

If you can afford it, make interest-only payments while you're in school to get credit for your payments and avoid interest capitalization, and after graduation, make sure you always pay your bill on time, even if it means getting on a payment plan with a lower payment amount.

Throughout this process, you can monitor your credit using Experian's free credit monitoring service to track your progress and to learn about other steps you can take to build credit and protect your identity.

The purpose of this question submission tool is to provide general education on credit reporting. The Ask Experian team cannot respond to each question individually. However, if your question is of interest to a wide audience of consumers, the Experian team may include it in a future post and may also share responses in its social media outreach. If you have a question, others likely have the same question, too. By sharing your questions and our answers, we can help others as well.

Personal credit report disputes cannot be submitted through Ask Experian. To dispute information in your personal credit report, simply follow the instructions provided with it. Your personal credit report includes appropriate contact information including a website address, toll-free telephone number and mailing address.

To submit a dispute online visit Experian's Dispute Center. If you have a current copy of your personal credit report, simply enter the report number where indicated, and follow the instructions provided. If you do not have a current personal report, Experian will provide a free copy when you submit the information requested. Additionally, you may obtain a free copy of your report once a week through April 2022 at AnnualCreditReport.