A-to-Z Index

Loan Definitions


This occurs when a borrower fails to make several payments on their student loans according to the terms in their MPN. There are many consequences that can result when a loan is defaulted. These include: loan will be turned over to a collection agency, the borrower's credit rating can be harmed; loan payments can be deducted from the borrower's paychecks, the borrower will be ineligible to receive any more federal aid; late fees and collections costs may be added on top of what the borrower already owes; and the borrower can be sued. It is important to avoid default by borrowing as little as possible, making payments on time, and applying for deferment or forbearance if experiencing any financial hardships.  References: http://www.finaid.org/loans/default.phtml; http://studentaid.ed.gov/repay-loans


This occurs when a borrower is allowed to postpone repaying a loan for a limited amount of time. Most students choose to defer their loan payments while they are enrolled in school for at least half time. Deferment is not automatic, and the borrower must apply for it. Other reasons for a borrower to be eligible for deferment include: financial hardship, borrower unable to find full-time employment, and active military duty. References: http://studentaid.ed.gov/repay-loans/deferment-forbearance; http://www.finaid.org/questions/glossary.phtml#d


A loan is considered delinquent if a borrower fails to make a payment on time. Late fees may be charged if the borrower misses several payments, then the loan will go into default. (NSLDS is a useful tool for keeping track of student loans and can help prevent the borrower from becoming delinquent on a loan.) References: http://www.finaid.org/questions/glossary.phtml#a

Direct Loan

In the William D. Ford Federal Direct Loan Program (DL), borrowers attain student loans directly from the federal government.


In the Family Federal Education Loan Program (FFELP), borrowers attain federally-guaranteed student loans through a private bank.


This occurs when your lender temporarily allows the borrower to reduce or postpone loan payments. Interest does continue to accrue during forbearance and the borrower will be responsible for paying interest during the forbearance period. Forbearances are not granted automatically, for the borrower must apply for forbearance and provide proof of financial difficulty and/or unusual circumstances in which the borrower does not qualify for deferment.  Reference: http://www.finaid.org/loans/default.phtml

Private/Alternative Loans

Student loans not guaranteed through the federal government are referred to as private or alternative loans. Their terms and conditions may vary greatly because they are not required to adhere to federal guidelines.