Glossary of Financial Aid Terms

1040 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.

1090 Form

IRS form 1090 is used by business to report income paid to a non-employee. Banks use this form to report interest income.

Accrual Date

The date on which interest charges begin to accrue. See also Subsidized Loan below.

Asset

An asset is an item of value, such as a family's home and business equity, real estate, stocks, bonds, mutual funds, and bank accounts.

Asset Protection Allowance

The asset protection allowance is a portion of your parents assets that are not included in the calculation of the parental contribution. The asset protection allowance increases with the age of the parents.

Bursar's Office

The Bursar's Office is the university office that is responsible for the billing and collection of university charges.

Cancellation

Some loan programs provide for cancellation of the loan under certain circumstances. 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.

Capitalization

The practice of adding unpaid interest charges to the principal, increasing the size of the loan.

COA

The cost of attendance (COA), also known as the cost of education , is the total cost of education for the student, including tuition, fees, room and board, books and supplies, transportation, and miscellaneous expenses. Child care and expenses for disabilities may also be included.

Consolidation Loan

A consolidation loan combines several loans into one bigger loan. This sometimes results in a lower interest rate, as when a consumer loan is used to pay off credit card balances. Such loans often reduce the size of the monthly payment by extending the term of the loan beyond the 10 year repayment plan that is standard with FFELP loans. Of course, extending the term of a loan increases the total amount of interest paid. Consolidation loans also simplify the repayment process by allowing a single payment instead of several, since they replace several loans with a single bigger loan.

CWS

College Work-Study. Now known as Federal Work Study. See FWS.

Default

A loan is in default when the borrower fails to pay a regular installment on time 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, and the government can take legal action to recover the money, including garnishing your wages. Defaulting on a government loan will make you ineligible for future federal financial aid.

Deferment

Deferment occurs when a borrower is allowed to postpone repaying the loan. For example, some federal loan programs allow students to defer their loans while they are in school. Other loan programs allow the student to defer the interest payments by capitalizing the interest.

Dependency Status

A student's dependency status determines to what degree the student has access to parental financial resources.

An independent student is one who is at least 24 years old as of January 1 (e.g., born before January 1, 1972 for academic year 1995-96), is married, is a graduate or professional student, has a legal dependent other than a spouse, is a veteran of the US Armed Forces, or is an orphan or ward of the court. All other students are considered dependent. You must submit proof of independent status to qualify, and the financial aid office's decision is not subject to appeal.

Note: ROTC students and cadets and midshipmen at one of the service academies are not considered veterans. To be a veteran you must have been engaged in active service in the US Army, Navy, Air Force, Marines, or Coast Guard and received an honorable or medical discharge.

See your financial aid office if you have any special circumstances. The FAO may be able to do an override of your dependency status on the FAFSA, if warranted by involuntary dissolution of the family or other very unusual situations. Special circumstances that are sometimes sufficient for an override include:

• a legal restraining order has been issued against your parents because of abusive behavior
• both of your parents have been incarcerated
• your parents live in another country and you have been being granted refugee status by the US Immigration Service.

You do not qualify for independent status just because your parents have decided to not claim you as an exemption on their tax returns or are refusing to provide support for your college education. You must provide documentation to the satisfaction of the financial aid office that you are truly self-supporting for them to override your dependency status. A few financial aid offices may require that you have a minimum annual income of $10,000 to establish self-sufficiency.

[Several financial aid books suggest that all one needs to do for a student to become independent is for them to not be listed as a dependent on their parents' tax return for the past two years and for them to have earned at least $4,000 per year during the same period. This is the OLD definition of independence, and is no longer valid.]

Direct Lending

Direct Lending is a new federal program where the school becomes the lending agency and manages the funds directly, with the federal government acting as the guarantee agency. Not all schools currently participate in this program, and there is legislation pending that proposes to cap the program at 40%. Benefits of the program include a faster turn-around time and less bureaucracy.

Disbursement

The date on which the loan funds are released to the university for payment.

EFC

The Estimated Family Contribution (EFC) is the amount of money that the family is expected to be able to contribute to the student's education, according to Congressional law. The EFC is calculated according to a formula established by Congress, and includes the Parental Contribution and the Student Contribution. The difference between the COA and the EFC is the student's financial need.

EFT

Electronic Funds Transfer is used by lenders to wire funds for Stafford and PLUS loans directly to participating schools without requiring an intermediate check for the student to sign over.

Equity

Equity is the dollar value of your ownership in a piece of property. For example, your home equity is the current market value of the home less the mortgage's remaining unpaid principal.

ESAR

An ESAR is an electronic form of the Student Aid Report.

Exit Interview

Students with educational loans are required to meet with a financial aid officer before they graduate. During this exit interview, the FAO reviews the repayment terms of the loan and the repayment schedule with the student.

FAA

A FAA is a Financial Aid Administrator , a university employee who is involved in the financial aid process.

FAO

The FAO is the university's "Financial Aid Office", the university office that is responsible for the determination of financial need and the awarding of financial aid.

FAT

If you have previously attended a university and are now applying for financial aid from the different university, the university will require a Financial Aid Transcript (FAT) from all schools previously attended, regardless of whether aid was received. They are required to do this by federal law. You have to submit a FAT even if you were in high school at the time. The FAT is a record of all federal aid received by the student.

FAFSA

The FAFSA is the Free Application for Federal Student Aid , and is used to apply for Pell Grants and other federal aid.

Federal Methodology

The formula used to determine the EFC.

Federal Student Aid Information Center

Federal Student Aid Information Center
P.O. Box 84
Washington, DC 20044

Fellowship

A form of financial aid given to graduate students to help support their education. Some fellowships include a tuition waiver or a payment to the university in lieu of tuition. Most fellowships include a stipend to cover reasonable living expenses (e.g., just above the poverty line).

FFELP

The FFELP is the Federal Family Education Loan Program , and includes the Federal Stafford Loans and the PLUS loans.

Financial Aid Package

The financial aid package is the complete collection of grants, scholarships, loans, and work-study employment offered to a student to financially enable them to attend the university.

Financial Need

See Need below.

Forbearance

A forbearance is a form of deferment where the lender allows the borrower to postpone repaying the principal, but requires that the borrower continue to repay the interest charges.

FWS

The Federal Work-Study program is a cooperative education program. Eligibility is based on need. FWS provides students with term-time employment that is theoretically career-oriented (but gopher positions are not uncommon). Essentially FWS pays a portion of the student's salary, making it cheaper for departments and businesses to hire the student.

Garnish

The practice of withholding a portion of a borrower's wages to repay his or her loan, often without their consent.

Grace Period

A short time period after graduation during which the borrower is not required to begin repayment. The typical grace period is six or nine months.

Grant

A grant is a kind of financial aid that the student does not have to repay.

General Education Development Certificate

The General Education Development(GED) is a high school certificate that is achieved by taking a test. This test covers the basic information that a high-school graduate should know. This test is usually taken by individuals that have ceased attending high-school. A counselor can provide more insight into obtaining this certificate.

Guarantee Agency

A guarantee agency agrees to pay back a loan if the borrower should default. For example, the federal government guarantees the Stafford Loans. Each state has a different guarantee agency that administers the federal Stafford and Plus loans for students in that state. A guarantee fee is a small percentage of the loan that is paid to the guarantee agency as a form of insurance against default. For the name, address, and telephone number of your state's guarantee agency, call the Federal Student Aid Information Center at 1-800-433-3243 (1-800-4-FED-AID).

Horizontal Equity

The principle of horizontal equity is that families with similar financial circumstances should pay the same amount, regardless of how their assets, investments, and income are defined.

Income

Income is the amount of money received from employment (salary, wages, tips), profit from financial instruments (interest, dividends, capital gains), or other sources (welfare, disability, child support, Social Security, and pensions).

Independent Student

See Dependency Status.

Interest

Interest is an amount charged to the borrower for the privilege of using the lender's money. Interest is usually calculated as a percentage of the principal. The percentage rate may be fixed for the life of the loan, or it may be variable, depending on the terms of the loan. All new federal loans use variable interest rates that are tied to the cost to the government of borrowing money.

IRS

The Internal Revenue Service. The IRS is the federal agency responsible for enforcing US tax laws and collecting taxes.

ISIR

Institutional Student Information Report, the new name for SARs.

Lender

The bank or financial institution that provides the money to the borrower for the loan.

Loan

A loan is a kind of financial aid which is repaid, with interest. Repayment on some educational loans does not begin until the student has graduated or otherwise left school.

Merit-based

Financial aid that is merit-based depends on your academic or athletic merit, and do not depend on the existence of financial need. Merit-based awards use your grades, test scores, hobbies, and special talents to decide whether to give you financial aid.

Mortgage

A mortgage is a loan of funds for purchasing a piece of property which uses that property as security for the loan. The lender has a lien on the property and will receive the property if the borrower fails to repay the loan.

Need

The difference between the COA and the EFC is the student's financial need - the gap between the student's resources and the cost of attending the school. The financial aid package is often based on the amount of financial need. The process of determining a student's need is known as the need analysis .

Need-based

Financial aid that is need-based depends on your financial situation. Most government sources of financial aid are need-based.

Origination Fee

The origination fee is an upfront charge deducted from the loan to pay part of the loan's adminstrative costs.

Overawards

A student who receives federal support may not receive awards totaling more than $200 in excess of his or her financial need. Students who approach the overaward limit because of term-time earnings will be notified by the financial aid office.

Parental Contribution

The Parental Contribution is an estimate of the portion of your educational expenses that the federal government believes your parents can afford. It is based on their income, the number of parents earning income, assets, family size, and the number of family members currently attending a university. Students who qualify as independent are not expected to have a parental contribution.

Pell Grant

The Pell grant is a federal grant that provides funds of up to $2,340 based on the student's financial need.

Perkins Loan

Formerly the National Direct Student Loan Program, the Perkins Loan allows students to borrow up to $3,000/year (5 year max) for undergraduate school and $5,000/year for graduate school (6 year max).

PJ

PJ stands for Professional Judgement. In some federal aid programs the financial aid administrator can adjust the EFC, adjust the COA, or change the dependency status when extenuating circumstances exist.

Principal

Principal is the amount of money borrowed under the loan. Interest is charged as a percentage of the principal.

Professional Student

A student pursuing advanced study in law, medicine, or education.

Promissory Note

A promisory note is the binding legal document signed by the student borrower before loan funds are disbursed by the lender. The promisory note states the terms and conditions of the loan, including repayment schedule, interest rate, deferment policy, and cancellations. The student should keep this document until the loan has been repaid.

PLUS Loans

Parent Loans for Undergraduate Students (PLUS) are federal loans available to parents of undergraduate students to help finance the student's education. Parents may borrow up to the full cost of their children's education (up to $10,000 per year), less the amount of any other financial aid received.

Research Assistantship (RA)

A form of financial aid given to graduate students to help support their education. Research assistantships usually provide the graduate student with a waiver of all or part of tuition, plus a small stipend for living expenses. As the name implies, an RA is required to perform research duties. Sometimes these duties are strongly tied to the student's eventual thesis topic.

Resource

A resource is something that is available because a student is in school and is counted after need is determined. Prepaid tuition plans and VA educational benefits are examples of resources.

SAR

A SAR is the Student Aid Report sent to the student after filing a FAFSA. The SAR summarizes the information included in the FAFSA and must be provided to your school's FAO. The SAR will also indicate the amount of Pell Grant eligibility, if any, and the EFC. SARs are now know as ISIRs.

Satisfactory Academic Progress

A student must be making Satisfactory Academic Progress (SAP) in order to continue receiving federal aid. If a student fails to maintain an academic standing consistent with the school's SAP policy, they are unlikely to meet the school's graduation requirements.

Scholarship

A form of financial aid given to undergraduate students to help pay for their education. Most scholarships are restricted to paying all or part of tuition expenses, though some scholarships also cover room and board.

Secondary Market

Loans are often bought and sold on the secondary market. Thus the bank you make your payments to may change during the lifetime of the loan. The terms of your loan do not change when it is sold to another lender.

Selective Service

Registration for the Draft. Male students who are US citizens and have reached the age of 18 and were born after December 31, 1959 must be registered with Selective Service to be eligible for some kinds of federal financial aid.

SEOG

The Supplemental Education Opportunity Grant (SEOG) is a federal grant program for undergraduate students with exceptional need. SEOG grants are awarded by the school's financial aid office, and provide up to $4,000 per year. To qualify, a student should be a recipient of a Pell Grant.

SLS Loans

Supplemental Loan for Students (SLS) are federal loans for financially independent students. This program was eliminated in 1994 when the limits on the unsubsidized Stafford Loans were increased.

Stafford Loans

Stafford Loans are federal loans that come in two forms, subsidized and unsubsidized. Subsidized loans are based on need; unsubsidized loans aren't. The Subsidized Stafford Loan was formerly known as the Guaranteed Student Loan (GSL). Undergraduates may borrow up to $23,000 ($2,625 during the freshman year, $3,500 during the sophomore year, and $5,500 during each subsequent year) and graduate students up to $65,500 including any undergraduate Stafford loans ($8,500 per year).

Student Contribution

The Student Contribution is the amount of money the federal government expects the student to contribute to his or her education. It depends on their income and assets, but can vary from school to school. Usually a student is expected to contribute about 1/3 of his or her savings and 1/2 of his summer earnings. The federal formula expects the student to contribute half of his summer earnings above $1,750.

Subsidized Loan

With a subsidized loan, the government pays the interest on the loan while the student is in school and during the grace period.

Teaching Assistantship (TA)

A form of financial aid given to graduate students to help support their education. Teaching assistantships usually provide the graduate student with a waiver of all or part of tuition, plus a small stipend for living expenses. As the name implies, a TA is required to perform teaching duties.

Term

The term of a loan is the number of years (or months) during which the loan is to be repaid.

Unmet Need

In an ideal world, the FAO would be able to provide each student with the full difference between their ability to pay and the cost of education. Due to budget constraints the FAO may provide the student with less than the student's need (as determined by the FAO). This gap is known as the unmet need.

Unsubsidized Loan

An unsubsidized loan is a loan for which the government does not pay the interest. The borrower is responsible for the interest on an unsubsidized loan from the date the loan is disbursed. See also Subsidized Loan above.

Verification

Verification is a review process in which the FAO determines the accuracy of the information provided on the student's financial aid application. During verification the student will be required to submit documentation for the amounts listed (or not listed) on the financial aid application.

W2 Form

Employers are required by the IRS to issue a W2 form for each employee after the first of the year, but no later than February 28. The W2 form lists the employee's wages and tax withheld.