Financial Aid Glossary

Financial aid has its own vocabulary. To help you speak the language, here are the most commonly used terms and acronyms.

1040 Form, 1040A Form, 1040EZ Form
The Federal Income Tax Return. Every person who has received income during the previous year must file a form 1040 with the IRS by April 15.

1099 Form
Form used by business to report income paid to a non-employee. Banks use this form to report interest income.

401 (k)
A popular type of retirement fund. It is legal to borrow money from your 401(k) to help pay for your children's education.

Academic Year
The period during which school is in session, consisting of at least 30 weeks of instructional time. The school year typically runs from the beginning of September through the end of May at most colleges and universities.

Access
Access to higher education focuses on providing students with the opportunity to pursue a college education. Choice focuses on allowing students the flexibility to choose among several options. Generally, need-based aid promotes access while merit-based aid promotes choice. Students with no debt are more likely to pursue advanced education (4 year instead of 2 year undergraduate, graduate and professional school) and more likely to pursue public service careers.

Accrue
To accumulate.

Accrual Date
The date on which interest charges on an educational loan begin to accrue. See also Subsidized Loan.

Achievement Tests (SAT II)
A collection of tests that measure the student's proficiency and accumulated knowledge of specific subject areas. Different schools require different achievement tests as part of their admissions requirements. Since March 1994, these tests are now known as the SAT II tests. See also SAT and ETS.

Adjusted Available Income
In the Federal Methodology, the remaining income after the allowances (taxes and a basic living allowance) have been subtracted.

Admit-Deny
A practice in which a school will admit marginal students, but not award them any financial aid. Very few schools use admit-deny, because studies have shown that lack of sufficient financial aid is a key factor in the performance of marginal students.

Advanced Placement Test (AP)
Test used to earn credit for college subjects studied in high school. They are offered by ETS in the spring. AP tests are scored on a scale from 1 to 5 (the best possible score).

Aggregator
An aggregator is a student who wins many scholarships with a cumulative value of more than $100,000. Some aggregators have published books with a theme "I won a gazillion dollars for college and you can too". Although these books contain some good advice, most students will not be able to pay for college entirely through scholarships. Very few students win more than $100,000 in scholarships, and doing so requires a combination of talent and luck. More than 90% of students do not receive any private scholarships, and the average amount received by students who do win scholarships is approximately $2,000.

Alternative Loans
See Private Loans.

American College Test (ACT)
One of the two national standardized college entrance examinations used in the US. The other is the SAT. The ACT is widely used in the West and Midwest. Most universities require either the ACT or the SAT as part of an application for admission. See also PLAN.

Amortization
The process of gradually repaying a loan over an extended period of time through periodic installments of principal and interest.

Appeal
A formal request to have a financial aid administrator review your aid eligibility and possibly use Professional Judgment to adjust the figures. For example, if you believe the financial information on your financial aid application does not reflect your family's current ability to pay (e.g., because of death of a parent, unemployment or other unusual circumstances), you should definitely make an appeal. The financial aid administrator may require documentation of the special circumstances or of other information listed on your financial aid application.

Asset
An item of value, such as a family's home, business, and farm equity, real estate, stocks, bonds, mutual funds, cash, certificates of deposit (CDs), bank accounts, trust funds and other property and investments.

Asset Protection Allowance
A portion of your parents' assets that are not included in the calculation of the parent contribution, as calculated by the Federal Methodology need analysis formula. The asset protection allowance increases with the age of the parents.

Assistantship
See Graduate Assistantship.

Associate Degree
The degree granted by two-year colleges.

Award Letter
An official document issued by a school's financial aid office that lists all of the financial aid awarded to the student. This letter provides details on their analysis of your financial need and the breakdown of your financial aid package according to amount, source and type of aid. The award letter will include the terms and conditions for the financial aid and information about the cost of attendance. You are required to sign a copy of the letter, indicating whether you accept or decline each source of aid, and return it to the financial aid office. Some schools call the award letter the "Financial Aid Notification (FAN)".

Award Year
The academic year for which financial aid is requested (or received).

Bachelor's Degree
The undergraduate degree granted by four-year colleges and universities.

Balloon Payment
A larger than usual payment used to pay off the outstanding balance of a loan without penalty. Not all loans allow balloon payments. Simple interest loans, like many educational loans, generally do allow balloon payments.

Bankruptcy
When a person is declared bankrupt, he is found to be legally insolvent and his property is distributed among his creditors or otherwise administered to satisfy the interests of his creditors. Federal student loans, however, cannot normally be discharged through bankruptcy.

Base Year
The tax year prior to the academic year (award year) for which financial aid is requested. The base year runs from January 1 of the junior year in high school through December 31 of the senior year. Financial information from this year is used to determine eligibility for financial aid.

Borrower
The person who receives the loan.

Borrower Benefit
See Loan Discount.

Budget
See Cost of Attendance.

Bursar's Office
(Also called Student Accounts Office) The university office that is responsible for the billing and collection of university charges.

Campus-based Aid
Financial aid programs are administered by the university. The federal government provides the university with a fixed annual allocation, which is awarded by the financial aid administrator to deserving students. Such programs include the Perkins Loan, Supplemental Education Opportunity Grant and Federal Work-Study. Note that there is no guarantee that every eligible student will receive financial aid through these programs, because the awards are made from a fixed pool of money. This is a key difference between the campus-based loan programs and the Direct Loan Program. Do not confuse the two, even though both loans are issued through the schools.

Cancellation
Some loan programs provide for cancellation of the loan under certain circumstances, such as death or permanent disability of the borrower. Some of the Federal student loan programs have additional cancellation provisions. For example, if the student becomes a teacher in certain national shortage areas, they may be eligible for cancellation of all or part of the balance of their educational loans. Repayment assistance is available if you serve in the military; the military pays off a portion of your loans for every year of service.

Capital Gain
An increase in the value of an asset such as stocks, bonds, mutual funds and real estate between the time the asset was purchased and the time the asset was sold.

Capitalization
The practice of adding unpaid interest charges to the principal balance of an educational loan, thereby increasing the size of the loan. Interest is then charged on the new balance, including both the unpaid principal and the accrued interest. Capitalizing the interest increases the monthly payment and the amount of money you will eventually have to repay. If you can afford to pay the interest as it accrues, you are better off not capitalizing it. Capitalization is sometimes called compounding. See also Unsubsidized Loans.

Collateral
Property that is used to secure a loan. If the borrower defaults on the loan, the lender can seize the collateral. For example, a mortgage is usually secured by the house purchased with the loan.

Collection Agency
A company often hired by the lender or guarantee agency to recover defaulted loans.

College Board
A nonprofit educational association of colleges, universities, educational systems and other educational institutions. For more information, see College Board Online (CBO).

College Work-Study (CWS)
College Work-Study is simply a part time job. This term is sometimes erroneously used to refer to the Federal Work-Study Program.

Color of Federal Forms
The FAFSA and SAR change color each year in a four color rotation: Yellow (2003-04), Pink (2004-05), Green (2005-06), and Blue (2006-07) then it repeats. This will help you make sure you're filing the correct form. Purple has been the stable parent color since 1999-2000.

Common Law Marriage
If a couple cohabits while holding themselves out as being married, they are considered to be married in 16 states.

Community Property
Community property laws specify that property is owned jointly by husband and wife unless there is a specific agreement to the contrary (i.e., prenuptial agreements). According to IRS Publication 555, the following is a list of Community Property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In addition, Alaska has community property laws.

Commuter Student
A student who lives at home and commutes to school every day.

Compounded Interest
Interest that is paid on both the principal balance of the loan and on any accrued (unpaid) interest. Capitalizing the interest on an unsubsidized Stafford loan is a form of compounding.

Consolidation Loan
(Also called Loan Consolidation) A loan that combines several student loans into one bigger loan from a single lender. The consolidation loan is used to pay off the balances on the other loans.

Cooperative Education
A program where the student spends time engaged in employment related to their major in addition to regular classroom study.

Cosigner
A cosigner on a loan assumes responsibility for the loan if the borrower should fail to repay it.

Cost of Attendance (COA)
(Also known as the cost of education or "budget") The total amount it should cost the student to go to school, including tuition and fees, room and board, allowances for books and supplies, transportation, and personal and incidental expenses. Loan fees, if applicable, may also be included in the COA. Child care and expenses for disabilities may also be included at the discretion of the financial aid administrator. Schools establish different standard budget amounts for students living on-campus and off-campus, married and unmarried students and in-state and out-of-state students.

Credit Rating
An evaluation of the likelihood of a borrower to default on a loan. Credit bureaus and credit reporting agencies provide this information to banks and businesses to help them decide whether to issue a loan or extend credit. Your credit rating may include your payment history, a list of current and past credit accounts and their balances, employment and personal information and a history of past credit problems.

People who make all their payments on time are considered good credit risks. People who are frequently delinquent in making their payments are considered bad credit risks. Defaulting on a loan can hurt your credit rating.

Custodial Parent
If a student's parents are divorced or separated, the custodial parent is the one with whom the student lived the most during the past 12 months. The student's need analysis is based on financial information supplied by the custodial parent.

Default
A loan is in default when the borrower fails to pay several regular installments on time (i.e., payments overdue by 180 days) or otherwise fails to meet the terms and conditions of the loan. If you default on a loan, the university, the holder of the loan, the state government and the federal government can take legal action to recover the money, including garnishing your wages and withholding income tax refunds. Defaulting on a government loan will make you ineligible for future federal financial aid, unless a satisfactory repayment schedule is arranged, and can affect your credit rating.

Default Fee
Synonymous with Guarantee Fee.

Deferment
Occurs when a borrower is allowed to postpone repaying the loan. If you have a subsidized loan, the federal government pays the interest charges during the deferment period. If you have an unsubsidized loan, you are responsible for the interest that accrues during the deferment period. You can still postpone paying the interest charges by capitalizing the interest, which increases the size of the loan. Most federal loan programs allow students to defer their loans while they are in school at least half time. If you don't qualify for a deferment, you may be able to get a forbearance. You can't get a deferment if your loan is in default.

Delinquent
If the borrower fails to make a payment on time, the borrower is considered delinquent and late fees may be charged. If the borrower misses several payments, the loan goes into default.

Dependency Status
Determines to what degree a student has access to parent financial resources.

Dependent
For a child or other person to be considered your dependent, they must live with you and you must provide them with more than half of their support. Spouses do not count as dependents in the Federal Methodology. You and your spouse cannot both claim the same child as a dependent. (See also Independent.)