Banking Glossary

Accrued Date 
Day that interest charges begin on a loan.

Accrued Interest 
Interest that accumulates on the unpaid principal balance of a loan.

Students in Allopathic medicine are pursuing an M.D. at a school endorsed by the American Medical Association. Graduate students in allopathic medicine are eligible to apply for the Maximizer Medical loans.

Gradual repayment of a loan by periodic installments of principal and interest.

Annual Percentage Rate 
Cost of credit expressed as a yearly rate.

Balloon Payment 
Final payment of a loan that is much larger than previous payments. –

Legal action in which a person who cannot meet financial obligations is declared bankrupt by a court decree. Federal Bankruptcy Law allows this person’s property to be administered to satisfy creditors.

Legal entity to whom a lender extends credit for a period of time; a signed master promissory note serves as evidence of indebtedness.

Balance of a loan that is canceled if the borrower dies or becomes permanently and totally disabled.

Capitalization of Interest 
Addition of unpaid interest to the principal balance, which increases the monthly payment and total repayment amount.

Signer other than the borrower, who assumes responsibility for the loan if the borrower fails to repay it.

Compounded Interest 
Interest that is added to the loan principal and becomes subject to additional interest charges. See Capitalization of Interest.

Combining a borrower’s loans by transferring all loans to one holder.

Credit Agency

Organization that compiles credit and personal information to be provided to creditors. This information may include payment history, credit accounts and balances, and employment information.

Failure to make payments on a timely basis or to comply with other conditions of a loan. Defaults are reported to national reporting agencies, which may affect future creditworthiness.

Period during which a borrower who meets certain criteria may suspend loan payments. On some loans the federal government pays the interest. In other cases, interest accrues and the borrower is responsible for it.

Loan on which a payment is overdue.

Release of loan funds to the borrower. Disbursements for most student loans are made in installments and are usually co-payable to the borrower and the school.

Release of a borrower from the obligation to repay his or her loans.

Disclosure Statement 
Information that must be given to consumers about their financial dealings.

An eSignature, or electronic signature, is an online consent and agreement that has the same legal validity as a written signature. Currently, you can use your U.S. Department of Education PIN to eSign your Bank of America Federal Stafford loan application. Soon, you will also be able to eSign Bank of America Federal PLUS and private loan applications.

Estimated Family Contribution (EFC) 
Amount that students and families are expected to pay toward college expenses, calculated using a set formula to analyze information submitted on a needs analysis form. To get an idea of your EFC, refer to the Financial Aid Estimation page and interactive tool.
Note: See important disclosure information at the end of the Glossary.

Free Application for Federal Student Aid (FAFSA) 
This form is used to apply for federal student grants, work-study and loans, such as the Stafford Loan. Refer to the Department of Education web site for additional information. Some schools may require students to complete a FAFSA and apply for a federal loan before they will certify eligibility for a private loan.
Note: See important disclosure information at the end of the Glossary.

Federal Cohort Default Rate 
The cohort default rate measures the percentage of federal student loan borrowers who enter repayment in a given federal fiscal year and default on their loans by the end of the following federal fiscal year.

Financial Need 
Difference between the cost of attending school and family contribution, minus other aid. Financial need determines the loan amount for which a student qualifies.

Fixed Interest 
Rate of interest that does not change during the life of a loan.

Postponement of payments or reduction in monthly payments for a limited, specified period of time during which a borrower is unable to make payments.

Grace Period 
Specified period of time after the borrower graduates or leaves school during which he or she isn’t required to make principal payments.

Guarantee Agency (or guarantor) 
State, regional or national organization responsible for administering a student loan insurance program.

Guarantee Fee 
Insurance premium deducted from the borrower’s loan proceeds and paid to the guaranty agency to insure the loan.

Institution with legal title to a borrower’s loan. This may be the original lender, a secondary market to which the loan has been sold, or the guaranty agency in the case of default.

In-School Status 
Period during which a borrower is in school at least half-time or when the grace period occurs. The Federal government pays the interest on some loans during this period.

Insurance Premium 
Fee charged for default insurance on guaranteed student loans.

Fee charged for borrowing money. Interest is calculated as a percentage of the principal loan amount. The rate may remain fixed throughout the life of the loan, or it may be variable and change at specified intervals.

Interest-Only Payment 
Payment that covers the interest owed but not the principal balance

Financial institution (usually a bank, savings and loan, or credit union) that provides the funds for student loans.

The acronym for London Interbank Offered Rate, is the base interest rate paid on deposits between banks in the Eurodollar market. A Eurodollar is a dollar deposited in a bank in a country where the currency is not the dollar. The LIBOR rate quoted in the Wall Street Journal is an average of rate quotes from five major banks. The LIBOR has provided exceptional stability and consistency over the past twenty years.

Master Promissory Note (MPN) 
A legally binding contract that includes the terms and conditions under which the borrower promises to repay the loan. Use of the MPN may eliminate the need to complete a new promissory note every year a loan is needed. In most cases, a MPN may be used to obtain new loans over a period of 10 years.

Maturity Date 
Date when a master promissory note becomes due.

Needs Analysis 
Process to determine the amount of a student’s financial need, based on detailed family financial information. A needs analysis form is required before applying for most types of financial aid.

Negative Amortization 
Payment terms under which the borrower’s monthly payments do not cover the interest due; as a result, the loan balance increases.

Origination Fee 
Fee paid to the federal government and deducted from loan proceeds to partially offset the costs of the Federal Family Education Loan (FFELP) Program.

Students in Osteopathic medicine are pursuing a D.O. at a school endorsed by the American Medical Association. Graduate students in osteopathic medicine are eligible to apply for the Maximizer Medical loans.

Amount borrowed or remaining unpaid.

Repayment Period 
Period during which a loan borrower is obligated to make payments on his or her loans. This may be stated in years or number of payments.

Secondary Market 
Organization established to purchase loans from lenders, thus providing lenders with funds to make new loans. This does not affect the original terms and conditions of the loan.

Servicing Agency (Servicer) 
An organization that performs the administrative tasks associated with loans, such as collecting payments.

Simple Interest 
Interest calculated on the original principal only.

Student Aid Report (SAR) 
A federal output document sent to a student by the application processor. The SAR contains financial and other information reported by the student on the FAFSA. The student’s eligibility for aid is indicated by the Expected Family Contribution (EFC) which is printed on the front of the SAR.

Subsidized Loan 
Need-based loan on which interest is paid by the federal government while the student is in school or during grace and deferment periods.

Unsubsidized Loan 
A non need-based loan on which interest is not paid by the federal government.

U.S. Department of Education personal identification number (PIN) 
The U.S. Department of Education issues parents and financial aid applicants a PIN, which allows them to electronically sign their Free Application for Federal Student Aid (FAFSA) and gain access to various Department of Education systems. You can use your PIN to electronically sign a Bank of America Stafford loan application. If you do not have a PIN or have lost it, you can request a new PIN from the Department of Education. Your PIN should arrive in the mail 7-10 days after you make your request.
Note: See important disclosure information at the end of the Glossary.

Variable Interest 
Rate of interest that is tied to a certain index and changes periodically based on changes in the index.