If a college admissions officer asks you, “Have you filed the FAFSA,” you need to know what that is. (See below for a definition.) Ditto, if a lender says to you, “disbursements will be made directly to your college.” (See the definition below.)
Yup, there are lots of terms to understand. But don’t sweat it. Here’s a handy list of the most common financial aid terms that you’ll hear when you’re applying for college or financial assistance . . .
- ACCRUAL DATE – This is the date when a lending institution begins to charge and assess interest on a loan that you took. Note: Many student loans have accrual dates that fall after you have graduated. In other words, banks generally won’t start charging you interest until after you are a college grad.
- CAPITALIZATION – This is just a fancy way of saying that interest is being added to the amount of money that you have to pay back on a loan. Example: You borrowed $10,000, the lender added on $999 in interest, so your loan is capitalized at $10,999. Got it?
- COLLEGE SCHOLARSHIP SERVICE PROFILE (CSS PROFILE) – A financial profile questionnaire that was created by the College Board. Some colleges require you and/or your parents to fill it out if you’re applying for financial aid. Check it out HERE.
- DEFAULTING – If you fail to repay a loan at all or repay it too slowly, you could default on it. That’s not a good thing. You will be paying fees and penalties that are specified in the loan agreement that you signed.
- DISBURSEMENT – This is a fancy-pants way of saying that after you take a loan, the money you borrowed will be given (“disbursed”) either to you or to the school directly.
- EXPECTED FAMILY CONTRIBUTION (EFC) – This is the amount of money that a college decides that your family will be able to contribute toward your educational costs. Colleges determine the EFC based on the information you give them on the CSS (see above), the FAFSA (see below) or on the school’s own financial aid application. Example: Your family can only pay $5,000 a year toward your education, but your college thinks that it can pay $15,000.
- FAFSA (FREE APPLICATION FOR FEDERAL STUDENT AID) – This is a financial aid questionnaire developed by the Federal government. Whether you are applying for government aid or for a college scholarship, you are going to have to fill it out. Check it out HERE.
- FORBEARANCE – If you have graduated college and taken a loan that you’ll have a hard time repaying for a while, you can apply for forbearance, which is basically a delay of the date when you have to start repaying. In most cases, kindhearted lenders will start to charge interest on your loan during this period, even though you can’t start repaying it yet.
- GRANT – You’ll be glad if you get one of these. It’s money that a college hands you outright, and you don’t have to pay it back.
- GRACE PERIOD – This is tricky, but an example will explain it. If you review the fine print on your loan agreement, you will discover that certain grace periods are probably written into it. If you drop out of school but intend to enter again, for example, there could be a grace period during which the lender won’t start expecting you to repay the loan. If you fail to reenter school during the grace period, bills will start to arrive and you’re toast.
- LOAN CAPS – This is pretty obvious. It’s the maximum amount that a particular loan program (such as loans that your college makes available to students) will allow you to borrow. Example: You need $20,000 but the loan you can get is capped at $15,000. Time to sell the Camaro.
- MERIT-BASED FINANCIAL AID – This is financial assistance that a college offers because it really wants you because of your academic credentials, stellar personal qualities, six-pack abs, etc. It has nothing to do with how much money you or your family needs in order to pay for college.
- NEED-BASED FINANCIAL AID – This is financial assistance that a college offers because you need the dough. You told `em so on the CSS Profile, the FAFSA, or on the college’s own financial aid application. And for once, they listened.
- PELL GRANTS – These are government-funded grants for undergraduate students only. Learn more by clicking HERE.
- PERKINS LOANS – These are government loans that are available to both undergraduate and graduate students. That’s good. And you might be able to get one, even if you only attend college part-time. Check them out by clicking HERE.
- STUDENT AID REPORT - After you fill out the FAFSA, the friendly helpful government will send you this report. It explains the amount of financial aid that it believes you are qualified to receive. Example: You were hoping for $40,000 and Uncle Sam just decided that you only need $8,275.
- SUBSIDIZED LOAN – This is a loan on which the government will pay interest for you while you are in school. After you graduate, you pay the interest. (So never, ever graduate.) An UNSUBSIDIZED LOAN, as you have guessed, is a loan on which the government will not pay interest for you while you are in school – it’s up to you.
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