THE BLOG

13 Student Loan Terms You Need to Know

05/25/2015 01:14 pm ET | Updated May 24, 2016
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If you are paying back a student loan, you might be confused about some of the terminology. At Credible, we see borrowers and graduates everyday ask our customer care how they can get the most out of their student loans. Understanding these terms can help you manage your debt and learn where your money is going each month.

Accrued Interest

Accruing interest describes the interest that is accumulating during a period of non-payment. Non-payment loan status might be due to deferment, forbearance, or grace periods (see below).

Amortization

This is the process of paying off a loan through monthly payments or some other type of periodic installment. Some of the payment goes towards paying the principal, and another part goes towards interest. Amortization tables show you exactly how much of each you pay during the loan term.

Annual Percentage Rate (APR)

Annual percentage rate, or APR, is the amount of interest you pay on your student loan each year. The APR is set by the government for federal student loans, and by the U.S. Prime Rate and other factors for private loans. APR and interest rate are not always the same. APR usually includes lender associated fees and is a better method of comparison across lenders.

Compound Interest

Sometimes referred to as “interest on interest,” this means that the interest charged to your loan is based not just on the principal, but also on the amount of interest accumulated on the loan.

Forbearance

If for some reason you can’t make your loan payments, you can request to be granted forbearance. In this case, you might be able to stop payments or reduce monthly payments for a set period of time, such as 12 months. Typically, interest continues to accrue during the forbearance period.

Grace Period

A set period of time where you are not required to make loan payments, such as shortly after graduation. Some, but not all, loans charge interest during grace periods.

Loan Deferment

Typically, this is a period of time when you have completed your studies but don’t have to make loan payments yet. Deferment can be used for scholarships or going back to school.

Origination Fees

These fees are included in some private student loans and are usually administrative. You may have to pay origination fees up front. In some cases, they are subtracted from the loan amount or added on top of the total amount borrowed.

Prepayment

Loan prepayment means you pay back all or part of your loan earlier than scheduled. This might be part of a refinancing plan, or because you want to reduce how much you pay in interest. Student loans are prepayment penalty free.

Principal

The amount you owe on your loan at any given time, not including interest. If you borrow $10,000, your initial principal is $10,000. The total you pay back on a loan is the principal plus interest.

Refinancing

When you refinance a student loan, you pay off an old loan with a new loan. The new loan will have a new interest rate assessed based on your financial history, which may in turn reduce your overall repayment.

Subsidized / Unsubsidized Loans

Subsidized loans are student loans that the government offers to those in financial need. The interest on subsidized loans can be paid while you are in school or after you graduate. Unsubsidized loans are available to any student regardless of financial need, and interest must be paid during all periods on unsubsidized loans.

Term Length

This is the time designated to pay back your student loan, including all interest and fees. When you have completely paid back the loan, the loan is said to have matured. Longer terms may mean smaller monthly payments, but you will likely have a higher total repayment.

If you think you are overpaying on your student loans or need to take out a private student loan, visit Credible.

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