The language around student loans can sometimes feel like that AP class where you ‘borrowed answers from your neighbor’ in high school. But becoming fluent in that language can help you feel more confident about making some BIG money decisions. Like whether to refinance or how to pick the right federal repayment plan.
We’re here to make sure you know all the terms, nuances, and phrases around student debt. So when you come across 'capitalized interest' and 'Direct Loans' in a sentence, you're less like 'WTF?' and more like 'I got this.'
Capitalization: When unpaid interest is added to your loan. Think of it as monetary punishment for not making payments. A lot of capitalized interest means you’ll end up paying back WAY more than you borrowed. Not fun.
Consolidation: Combining multiple federal loans to simplify your life. Anddd exhale. You might get a lower monthly payment now if you extend the loan term. But stretching out your timeline means you’ll end up paying more in interest over time.
Deferment: Pressing ‘pause’ on repaying your student loans. Not ideal. But you’re not defaulting (aka not asking for permission to stop paying), which hurts your credit. Silver lining.
Direct Loan: The John and Jane Smith of student loans. It's the most common way to borrow money for your education from an institution that's not a bank. Aka the federal government.
Disbursement: When you apply for a loan, you don’t get the money right away. Disbursement is like payday. It usually bypasses your wallet and goes directly to your school.
Fixed Rate: Interest that puts a ring on it. ‘Fixed’ means your rate doesn’t change, no matter what happens in the economy. If you have a fixed-rate loan, you’ll know exactly what you’ll be paying back in the future.
Forbearance: Another way to freeze your debt payments. Good news: Forbearance is usually easier to qualify for than deferment. Bad news: Interest keeps running, so your balance could be much bigger when you start paying again.
Interest: How lenders make money off you. Interest is what gets added to your principal, meaning you end up paying back more money than you initially borrowed.
Principal: The amount of money you owe without interest rate strings attached. As you make payments over time, the principal will go down. And so will your stress. Namaste.
Refinancing: Same loans, different outfits. Refinancing is when you get a new loan on the same money so you can get a lower interest rate. You have to use a private lender.
Servicer: Like your student loan pen pal in charge of admin tasks (think: collecting payments, answering Qs). They don’t actually lend you money, but they manage the process after you start paying it back.
Variable Rate: Interest that hasn’t defined the relationship yet. ‘Variable’ means your interest rate can change based on outside factors. It could go way down or way up — gamble at your own risk.