The A to Z’s of college loan terms

July 26, 2023

Learning about student loans can be confusing — from creating a payment plan, to understanding subsidized versus unsubsidized loans, there’s a lot to cover. Here are some key terms you need to know about.

Taking out loans for college is a reality for many students. Perhaps you’ve just been accepted to your top-choice university and you’re wondering how to finance it, or maybe your degree is nearly complete and it’s time to start thinking about repayment. No matter where you are in your pursuit of higher education, it’s important to understand your student loans and how they impact your financial future. From A to Z, here are the phrases you’re likely to come across in your loan agreement.

 

Default

Neglecting to make your loan payments in accordance with your contract that outlines the terms and conditions of your loans. Depending on the type of loan, it could go into default as soon as you miss one payment. Others may be considered in default after nine months of non-payment.

 

Deferment

The ability to stop making payments on federal loans for a short period of time. This could apply if you’re enrolled in school, unable to find full-time employment, serving in the military or experiencing economic hardship. You may not have to pay the accrued interest on your loans during this time.

 

Endorser

A person, perhaps a parent or other relative, with good credit history who agrees to repay your student loans if you’re not able to.

 

Expected family contribution

This determines your eligibility for financial aid and is calculated based on the information provided on your Free Application for Federal Student Aid (FAFSA).

 

Forbearance

Similar to deferment in that it allows those who are eligible to temporarily cease making payments because of reasons such as change in employment, financial difficulties or medical expenses. Unlike deferment, however, you are responsible for paying the interest that accrues during your forbearance period.

 

Grace period

A period of time after a borrower graduates, leaves school or drops below half-time enrollment where he or she is not expected to make payments on student loans. A typical grace period is six to nine months.

 

Loan forgiveness

Sometimes referred to as discharge or cancellation, this is the dismissal of the borrower’s obligation to repay an outstanding student loan. Forgiveness is granted in limited circumstances, such as working for a government agency or nonprofit organization, bankruptcy or death.

 

Master promissory note

The document you sign in which you promise to repay your student loans. This is a contract that outlines the terms and conditions of your loans.

 

Repayment period

The maximum amount of time you have to repay your student loans. This typically ranges from 10 to 30 years, depending on your loan amount and repayment plan.

 

Repayment plan

A plan you agree to with a lender to repay your student loans. The type of plan you choose will determine your monthly payment amount and how many payments you ultimately make. Your options include:

  • Extended repayment plan: Fixed or graduated monthly payments made for up to 25 years for loans totaling more than $30,000. 
  • Graduated repayment plan: Monthly payments start out low and increase every two years, up to a period of 10 years (or up to 30 years for consolidated loans).
  • Income-based repayment plan: Monthly payments are calculated by taking 15 percent of your discretionary income (10 percent if you’re a new borrower) and dividing by 12.
  • Income-contingent repayment plan: Monthly payments that equal whichever is lesser between what you’d pay on a fixed monthly repayment plan for 12 years, or 20 percent of your discretionary income divided by 12.
  • Income-sensitive repayment plan: Monthly payments are based on your annual income, with the total loan amount being paid within 15 years.
  • Pay as you earn repayment plan: Monthly payments equal 10 percent of your discretionary income, divided by 12. 
  • Standard repayment plan: Monthly payments of at least $50 for up to 10 years (or up to 30 for consolidated loans). Though your monthly payments may be higher, you’ll pay off your federal loans faster, saving you money on interest.

 

Subsidized loan

A federal student loan, the amount of which is determined by your school and cannot exceed your financial need. Interest is paid by the U.S. Department of Education while you're in school, during your grace period and during deferment.

 

Unsubsidized loan

Available to all students, regardless of financial need, though your school still determines the amount you can borrow. You are responsible for paying interest during all periods of this type of loan.

 

Get more tips and information to help you understand what your options may be to help you pay for a college education.

 

Related content

Investment strategies by age

Evaluating interest rate risk creating risk management strategy

Essential financial resources and protections for military families

Preparing for retirement: 8 steps to take

At your service: outsourcing loan agency work

How I did it: Bought a home without a 20 percent down payment

Money Moments: Tips for selling your home

Overcoming high interest rates: Getting your homeownership goals back on track

Everything you need to know about consolidating debts

3 ways to keep costs down at the grocery store (and make meal planning fun)

5 things to consider when deciding to take an unplanned trip

Certificates of deposit: How they work to grow your money

Stay committed to your goals by creating positive habits

A who’s who at your local bank

What financial advice would you give your younger self?

Dear Money Mentor: How do I pick a savings or checking account?

What you should know about buying a car

Credit: Do you understand it?

Is it the right time to refinance your mortgage?

6 questions to ask before buying a new home

What is a home equity line of credit (HELOC) and what can it be used for?

Your financial aid guide: What are your options?

9 simple ways to save

Here’s how to create a budget for yourself

Helpful tips for safe and smart charitable giving

Money Moments: 8 dos and don’ts for saving money in your 30s

What’s in your emergency fund?

What you need to know about renting

Maximizing your infrastructure finance project with a full suite trustee and agent

How to build wealth at any age

Your 5-step guide to financial planning

8 steps to take before you buy a home

What to know when buying a home with your significant other

5 financial goals for the new year

Retirement savings by age

Allowance basics for parents and kids

How I did it: Turned my side hustle into a full-time job

5 reasons why couples may have separate bank accounts

Common unexpected expenses and three ways to pay for them

It's possible: 7 tips for breaking the spending cycle

Closing on a house checklist for buyers

Multiple accounts can make it easier to follow a monthly budget

5 tips for parents opening a bank account for kids

6 questions students should ask about checking accounts

30-day adulting challenge: Financial wellness tasks to complete in a month

How to build a financial plan that covers your savings and expenses

How I did it: Switched career paths by taking an unexpected pivot

What you need to know before buying a new or used car

Year-end financial checklist

An investor’s guide to marketplace lending

What is a CLO?

Beyond Mars, AeroVironment’s earthly expansion fueled by U.S. Bank

ABL mythbusters: The truth about asset-based lending

Collateral options for ABL: What’s eligible, what’s not?

Can ABL options fuel your business — and keep it running?

Evaluating interest rate risk creating risk management strategy

Managing the rising costs of payment acceptance with service fees

3 reasons governments and educational institutions should implement service fees

Higher education and the cashless society: Latest trends

Tech lifecycle refresh: A tale of two philosophies

Changes in credit reporting and what it means for homebuyers

4 benefits of independent loan agents

Middle-market direct lending: Obstacles and opportunities

Talent acquisition 101: Building a small business dream team

How to fund your business without using 401(k) savings

Costs to consider when starting a business

How to test new business ideas

Meet your business credit card support team

How jumbo loans can help home buyers and your builder business

When to consider switching banks for your business

How to choose the right business checking account

5 tips to help you land a small business loan

Break free from cash flow management constraints

Good money habits: 6 common money mistakes to avoid

How to talk about money with your family

Retirement income planning: 4 steps to take

Preparing for retirement: 8 steps to take

11 essential things to do before baby comes

Webinar: Uncover the cost: Starting a family

Preparing for adoption and IVF

Checklist: 10 questions to ask your home inspector

Checklist: financial recovery after a natural disaster

How does money influence your planning?

College budgeting: When to save and splurge

Student checklist: Preparing for college

Uncover the cost of a college diploma

How to save money in college: easy ways to spend less

The A to Z’s of college loan terms

Co-signing 101: Applying for a loan with co-borrower

Practical money skills and financial tips for college students

How to build credit as a student

5 things to know before accepting a first job offer

Learn to spot and protect yourself from common student scams

How I did it: Paid off student loans

Bank Notes: College cost comparison

Tips to earn that A+ in back-to-school savings

How to avoid student loan scams

Webinar: U.S. Bank asks: Are you safe from fraud?

5 tips for creating (and sticking to) a holiday budget

Growing your savings by going on a ‘money hunt’

Working with an accountability partner can help you reach your goals

Does your savings plan match your lifestyle?

Uncover the cost: Wedding

Are savings bonds still a thing?

Tips to overcome three common savings hurdles

Adulting 101: How to make a budget plan

Personal loans first-timer's guide: 7 questions to ask

Mindset Matters: How to practice mindful spending

How can I help my student manage money?

How to manage money in the military: A veteran weighs in

You can take these 18 budgeting tips straight to the bank

Do you and your fiancé have compatible financial goals?

U.S. Bank asks: Transitioning out of college life? What’s next?

U.S. Bank asks: Do you know your finances?

U.S. Bank asks: Do you know what an overdraft is?

Personal finance for teens can empower your child

How to save for a wedding

How compound interest works

Dear Money Mentor: How do I set and track financial goals?

First-timer’s guide to savings account alternatives

How to stop living paycheck to paycheck post-pay increase

Bank from home with these digital features

How grandparents can contribute to college funds instead of buying gifts

How to open and invest in a 529 plan

Using 529 plans for K-12 tuition

Is a home equity loan for college the right choice for your student

Parent checklist: Preparing for college

How to apply for federal student aid through the FAFSA

What to consider before taking out a student loan

Are you ready to restart your federal student loan payments?

How to use debt to build wealth

What’s a subordination agreement, and why does it matter?

Understanding the true cost of borrowing: What is amortization, and why does it matter?

Your quick guide to loans and obtaining credit

Dear Money Mentor: What is cash-out refinancing and is it right for you?

What are conforming loan limits and why are they increasing

Money Moments: How to finance a home addition

These small home improvement projects offer big returns on investment

Should you get a home equity loan or a home equity line of credit?

Is a home equity line of credit (HELOC) right for you?

How to use your home equity to finance home improvements

How do I prequalify for a mortgage?

Can you take advantage of the dead equity in your home?

4 questions to ask before you buy an investment property

10 uses for a home equity loan

Test your loan savvy

Should you give your child a college credit card?

Take the stress out of buying your teen a car

Questions to ask before buying a car

How to choose the best car loan for you

Disclosures

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, Home Equity and Credit products are offered through U.S. Bank National Association. Deposit products are offered through U.S. Bank National Association. Member FDIC.