Important Terms.

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Know the Language. Here's a glossary of important terms so you won't get lost in all the jargon.

Accrued interest: Interest is periodically calculated on the unpaid balance and becomes accrued interest. (See Capitalized Interest).

Borrower: The individual responsible for repaying the loan. The borrower signs a promissory note as an agreement to the terms of the loan.

Capitalizing interest: The process of adding accrued interest to the principal amount borrowed, rather than paying the interest as it becomes due. (ISM waits until borrowers enter repayment to capitalize interest so borrowers are not charged interest on interest while they are in school)

Default: Failure to make loan payments according to the terms agreed to under the Master Promissory Note. Loans are considered to be in default if the borrower is delinquent in repayment for a period of 270 days. Default causes serious consequences for the borrower.

Default Fee (formerly the guarantee fee) A fee of up to 1% which may be charged by a guaranty agency. This fee, if charged, will be deducted from the proceeds of the loan. (All lenders ISM works with have agreed to pay the Guarantee fee on behalf of borrowers, if the guaranty agency does not pay the fee.)

Deferment: A temporary period granted to the borrower under eligible circumstances during which no principal payments are due. Eligible circumstances include economic hardship, unemployment and others.

Delinquent: When the borrower fails to make a payment when due, or fails to meet other terms of the loan, the borrower is consider delinquent.

Disbursement: The transfer of loan proceeds by the lender to a borrower, school or escrow agent.

Disclosure statement: A required statement from the lender to the borrower outlining the actual cost of the loan. This includes the interest rate and any additional finance charges.

Forbearance: Granted only by permission from your lender, forbearance allows for a delay or reduction in the principal payments of a loan. Interest will continue to accrue on the loan during forbearance.

Grace period: The period of time allowed a borrower before loan payments must begin. Generally this period begins after a borrower graduates, drops below half-time enrollment or leaves school.

Guaranty agency: A state or private nonprofit agency that administers the Federal Family Education Loan Program (FFELP) and insures student loans for lenders.

Interest: The fee or price charged for the use of borrowed money. Interest is calculated as a percentage of the outstanding balance of the loan for a given period of time.

Lender: The entity that provided the borrower with a loan. This may include the federal government, a bank or other institution.

MPN: The Master Promissory Note (MPN) is the agreement to pay that is made between the borrower and lender.

Origination fee: A fee of up to 2% charged by the government to process a loan. This fee is normally deducted from the proceeds of the loan. (ISM pays origination fees on behalf of Stafford borrowers and provides a comparable benefit for PLUS borrowers)

Principal: The amount of money borrowed.

Promissory note: A binding legal document you sign to obtain a loan. The promissory note details the terms and conditions of the loan, including the interest charged and the time to repay.

Secondary market: A state, private or nonprofit agency that purchases loans from lenders (ISM is a secondary market).

Servicer (or Third-party servicer): The entity designated to administer any aspects of a federal loan program. Services may include loan origination and disbursement, collection, default prevention, and debt management. (ISM is also a servicer).

Subsidized loan: Under the Federal Family Education Loan Program (FFELP), the government pays the interest that accrues while the borrower is in school, during the grace period or during approved periods of deferment.

Unsubsidized loan: Under the Federal Family Education Loan Program (FFELP), the borrower is responsible for paying the interest that accrues while he/she is in school, during the grace period, during approved periods of deferment and during repayment.

Federal Student Aid Personal Identification Number (PIN): You'll need a PIN number from the U.S. Department of Education to access federal financial aid information, to apply for yours on-line, click here.