If you have participated in the Federal Stafford Loan Program, we recommend that you first contact that lender, as you may be eligible for special loan program features. We encourage you to compare the terms and conditions of several products before making any decision. Ask about these points:
Accrued Interest
The unpaid interest based on the unpaid principal.
Tip: If you can pay the interest while you are taking classes, you will avoid accrual.
Annual Percentage Rate (APR)
The annualized cost of your loan. A fixed APR will always stay the same; a variable APR may increase at anytime.
Tip: The annual cost of your loan will include interest as well as fees and charges.
Co-Signer
Someone who signs to be responsible for your loan repayment. Some loans require a co-signer and some make a co-signer optional.
Tip: Sometimes having a co-signer will reduce the costs of the loan regardless of whether or not the loan conditions require a co-signer.
Credit History
A record of your past and present debt and repayment as reported by a credit bureau.
Tip: Be sure credit reporting agencies have accurate information about you.
CreditReady
This term describes borrowers who have no credit history or no adverse credit.
Tip: If you have no credit history, try to establish credit before taking out a loan.
Creditworthy
Usually, this means an established credit history, no negative credit, and sufficient income to cover debts.
Tip: Creditworthiness may vary by institution.
Grace Period
The period between the date you leave school or drop below any designated status.
Tip: Plan ahead so that you are ready to begin repayment at the end of the grace period.
Interest Capitalization
If you do not pay the interest on your loan while you are taking classes, the interest accrues, i.e., it is added to your principal balance. When interest is added to principal, it is capitalized. If it is capitalized annually, it is more expensive than if it is only capitalized once at repayment.
Tip: If you can pay the interest while taking classes, you may avoid interest capitalization.
Lender for Federal Programs
Some lending institutions participate in both private educational loans and federal loan programs.
Tip: If you have previously received a federal loan and are now taking out a private loan, check with your previous lender. You may be eligible for special loan program features.
Loan Limits
The maximum amount you can borrow.
Tip: Maximum does not represent what you should borrow; only what you may borrow.
Pre-Screen
A lender's quick and initial assessment of whether or not you will qualify for a loan.
Pre-screens are neither final nor formal. It does tell you the probability of being approved.
Tip: Answer all questions completely and honestly.
Prime Rate
The interest rate set by banks as the base rate.
Tip: The Prime Rate does not adjust on any regular basis.
Principal Amount
The original amount of a loan when all disbursements are completed, i.e., the sum of the disbursements.
Tip: Distinguish carefully between what you might want to borrow and what you might need to borrow. Then, make the principal only what you need.
Promissory Note
A legally binding agreement the borrower signs to obtain a loan.
Tip: Before signing, be sure to read and understand all the terms and conditions of the loan as included on the promissory note.
Repayment
Paying back your loan. It is important to find out when repayment begins. Some loans will require immediate paybacks; some will be due as soon as you finish classes; others will be due a period after finishing school, for example six months later.
Tip: To lessen overall payback, consider making early repayments, if possible, even if they are not required.
Repayment Incentives
A reward you can receive after making payments on time over a designated period of time. Many repayment incentives take the form of an interest rate reduction after a certain number of consecutive on-time monthly payments.
Tip: Plan to meet any stated criteria for repayment incentives.
Repayment Period
The number of years you are given to repay the loan. This time varies by institution.
Tip: Think about the amount of money you require and the duration of the repayment period. Select a loan with a repayment schedule that will be feasible for you.
Verifiable Income
Documented income such as pay stubs, W2 forms, tax returns, etc.
Tip: Keep copies of your verified income.
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