One of the criteria used to establish student eligibility in order to receive government student assistance is that a student must have earned a high school diploma or its equivalent. Students who are not high school graduates (or who have not received General Education Certificates) can demonstrate that they have the “ability to benefit” from the education or training being offered by passing an approved ability-to-benefit (ATB) test or upon satisfactory completion of six credit hours or equivalent coursework that is applicable toward a degree or certificate. Serious problems with ATB tests can be the basis of an application for a loan cancellation due to ATB fraud. As of July 1, 2012, borrowers without high school diplomas or equivalencies are no longer eligible for federal aid. But there are some important exceptions, including for students who have completed a secondary school education in a home school setting. A more recent exception allows students without high school diplomas or equivalencies to qualify for federal student aid if they are enrolled in “eligible career pathway programs.” The Department has provided some guidance on how to define career pathway programs, but it still remains to be seen how this will work in practice.
When a creditor claims the total balance of a loan is due immediately. This cannot usually occur unless the borrower has fallen behind on payments.
Annual Percentage Rate
The interest rate on a loan expressed under rules required by federal law. It is more accurate to look at the annual percentage rate (as opposed to the stated interest rate) to determine the true cost of a loan, because it tells you the full cost of the loan including many of the lender’s fees. For private student loans, you will find the annual percentage rate for a loan on the disclosure statement that is given to you when the loan papers are signed.
In a lawsuit, this is a legal document that the defendant must file to respond to the claims being raised. There are often short time deadlines to file an answer.
A legal process that allows a creditor to “attach” a lien to property that you own. Depending on state law, almost any kind of property may be subject to attachment, including your home, automobile, bank accounts, and wages. Once a lien is attached to the property, you may face further collection action on that property, including execution and garnishment.
A legal process available in all states that allows consumers to address debt problems according to a set of special rules while getting protection from continued collection activity.
Cancellation (also known as “discharge”)
Loan cancellations wipe out your current loan and also allow you to get back any money paid on the loan and any money that was taken through tax refund intercepts, wage garnishment, or other collection methods. In most cases, the government is also required to delete negative references on your credit report. Cancellations for federal students loans are only available in limited circumstances. If you have a private loan, you will need to contact your lender or current loan holder to discuss possible cancellation options.
Capitalization occurs when items owed on a loan are treated as part of a new principal balance. When arrears are “capitalized,” the amount of the arrears is included in the principal before the interest rate is applied. Often, capitalization and reamortization go hand in hand. If the arrears are “capitalized” and the loan is “reamortized,” your lender will recalculate your payment using the existing interest rate and the new principal balance.
Chapter 7 Bankruptcy
Chapter 13 Bankruptcy
Property put up to secure a loan. If you have given a creditor collateral, that creditor can normally take and sell the collateral if you are not able to repay the loan. A creditor with collateral is normally known as a “secured creditor.”
Also known as “judgment proof”, this term is applied to people or businesses with property of minimal value, which can be entirely protected by exemptions. If you are collection-proof, it is difficult or sometimes impossible for any creditor to force you to pay a debt.
A document beginning a lawsuit. A complaint normally includes a statement of all of the claims being raised by the person bringing the lawsuit.
Consolidation loans allow borrowers to combine different types of federal student loans to simplify repayment. Consolidation is similar to refinancing of a loan. Borrowers have the option to consolidate all, just some, or even just one of their existing student loans. There is generally no minimum or maximum size for a Direct Consolidation Loan. Not all student loans are eligible for consolidation and generally, once loans have been consolidated they cannot be consolidated again. Since 2010, Direct Loan consolidation is the only federal consolidation program.
A person who agrees to be responsible for someone else’s debt. A cosigner is normally responsible for paying back a debt just as if he or she had received the money.
Cost of Attendance
This is the total, as estimated by the college, of: tuition and required fees; room and board (rent and food); books and supplies; transportation; and miscellaneous personal expenses (including computer expenses). Institutions do not necessarily use consistent methods of estimating these amounts, but the U.S. Department of Education does issue guidelines for what campuses may include.
A response to a lawsuit in which the person being sued raises legal claims against the person (or business) which started the case.
Credit Bureau (also called consumer reporting agency or credit reporting agency)
This is a company that receives information about a consumer’s credit history and keeps records that are available to those seeking data about that consumer.
Also called a consumer report or a credit record. This is the information about a consumer that a credit bureau has on file that it can report to others. The report includes the credit history and current status of a consumer’s monthly payment obligations and public information such as bankruptcies and court judgments.
A credit score (sometimes called a “FICO” score), is a number that summarizes your credit history. The purpose of the score is to help lenders evaluate whether you are a risky borrower.
Any person or business to whom you owe money.
Cure a Default
If you have defaulted on a debt, this is a process for correcting the default. Most often, a “cure” refers to getting caught up on missed payments. A cure may also be called reinstatement.
The most common use of this term applies to anyone who collects debts. However, under the federal Fair Debt Collection Practices Act (FDCPA), the term only applies to collection agencies and lawyers (or their employees) that are collecting debts for others. State laws may cover other types of collectors.
Any person who owes money to another.
Debtor’s Examination (also known as “post-judgment process,” “asset examination,” and “supplementary process”)
This is normally a court ordered proceeding in which a debtor must appear in court or in an attorney’s office to answer questions about current income and assets from which a judgment may be collected. In many states, failure to appear at a debtor’s examination can result in an arrest warrant.
Failure to pay a loan according to the terms agreed to in the promissory note. For FFEL and Direct Loans, default occurs if a borrower fails to make a payment for 270 days if the loan is repaid monthly.
In a lawsuit, this is the person or business that is being sued.
A legal reason why a court should not award any or all of what is requested in a lawsuit. For example, a statement that the money is not owed is a defense to a collection lawsuit.
Deferments allow eligible borrowers to postpone paying back their loans in certain circumstances. This is an extremely useful option particularly for subsidized Stafford loans, because interest does not accrue on those loans during the deferment period.
The government considers family resources of dependent students in determining financial aid amounts.
Borrowers are considered dependent if they do not meet any of the criteria for independent students.
Student loans that are made directly by the federal government to students, with the assistance of the school or other entity that originates the loan. Lenders and guaranty agencies are not involved in the process.
This term is commonly used to refer to the document that explains loan terms according to the Truth in Lending Act.
Equity in property is the amount of cash you would keep if you sold property and paid off all of the liens on that property. For example, if you own a house worth $100,000, but you owe $60,000 on your original mortgage and $10,000 on a second mortgage, you have $30,000 in equity. The same principle applies to cars and other types of property.
Property that the law allows you to keep when you are being faced with collection on an unsecured debt.
These are laws that give you the right to keep your exempt property.
Expected Family Contribution (EFC)
The amount a family and student are estimated to be able to contribute toward college expenses, based on either a federal formula (known as Federal Methodology or FM) or an alternative formula (known as Institutional Methodology or IM). For dependent students, the EFC is comprised of a “parent contribution” and a “student contribution.” The amount depends on many factors and can be adjusted by financial aid administrators based on a student’s special circumstances.
To determine an estimated EFC based on a specific family scenario, see the calculators available on colleges’ sites and at the College Board.
Fair Debt Collection Practices Act
A federal law that governs the conduct of debt collectors and that prevents many abusive collection tactics.
This program allows the government to take certain Social Security benefits, benefits under Part B of the Black Lung Act, and some Railroad Retirement benefits to collect federal government student loans.
These are guaranteed student loans made by private lenders. The government reimburses the lender when borrowers default, or otherwise fail to pay back the loan. Before getting reimbursed, lenders are required to make certain efforts to collect the loans. This program was eliminated as of July 1, 2010.
A loan on which the interest rate is set for the term of the loan.
Forbearance involves a loan holder agreeing to a temporary stoppage of payments, an extension of time for making payments, or acceptance of smaller payments. Interest continues to accrue during a forbearance period.
A creditor’s seizure, to satisfy a debt, of property belonging to the debtor that is in the possession of a third party. Usually a court has to authorize the seizure in advance. However, this is not required for the government to garnish wages through administrative wage garnishment to collect defaulted student loans. There are notice and other requirements that the government must follow, in this case, but no court judgment is necessary.
A state or private nonprofit agency that has an agreement with the Secretary of Education to administer the FFEL program. The agency insures lenders against losses due to a borrower’s default. Also called “guarantor” or “guarantee agency.” For the name, address, and telephone number of the agency in any particular state, contact the Federal Student Aid Information Center at 1-800-4-FED-AID.
The right, available in most states and in the bankruptcy process, to treat your residence as exempt property that cannot be sold to satisfy the claims of unsecured creditors. In most states, the homestead exemption covers a certain dollar amount of your equity in your residence. A home cannot normally be sold to pay claims of your creditors unless your equity in the home exceeds the amount of the exemption.
The term “independent”, when used with respect to a student, means individuals who–
A) are 24 years old or older by December of the award year,
B) are orphans, in foster care, or wards of the court, at any time when borrowers are 13 years of age or older,
C) are emancipated minors or those in legal guardianship,
D) are Armed Forces veterans or those currently serving on active duty for other than training purposes,
E) are graduate or professional students,
F) are married on the day of application,
G) have dependents other than a spouse,
H) have been verified during the school year in which the application is submitted as either unaccompanied youth who is a homeless child or youth or as unaccompanied at risk of homelessness and self-supporting, or
I) have been verified as independent by a financial aid administrator by reason of other unusual circumstances.
Not living with parents or not being claimed by them on tax forms does not determine dependency status.
A published rate often used to establish the interest rate charged on variable rate loans or to compare investment returns. Examples of commonly used indexes include Treasury bill rates, the prime rate, and LIBOR (the London Interbank Offered Rate).
A person or business that does not have sufficient assets to pay its debts.
The cost of borrowing money over time. Interest rates are expressed as a percentage.
A determination by a court as to the outcome of a lawsuit, including any amounts owed.
Also called a “security interest,” it is a legal interest taken by creditors in your property to secure repayment of a debt. A creditor with a lien is called a secured creditor.
Sale of property to pay creditors. The term is also used as a shorthand name for the chapter 7 bankruptcy process, even though property is not always sold in that bankruptcy process.
The number added to the index to determine the interest rate on an adjustable rate loan. For example, if the index rate is 6%, and the current note rate is 8.75%, the margin is 2.75%.
This is the Department of Education’s database for federal student financial aid. NSLDS receives data from schools, guaranty agencies and from the U.S. Department of Education.
Negative amortization occurs when your payments do not cover the amount of interest due for that payment period.
Net Price Calculator
Each school that participates in the federal aid programs is required to post a net price calculator on its web site. The net price of attendance is defined as cost of attendance minus grant and scholarship aid.
A fee paid to a lender for processing a loan application. It is stated as a percentage of the loan amount, or “points.”
Perkins Loans (formerly called National Direct Student Loans, and before that National Defense Student Loans) are low-interest loans for both undergraduate and graduate students with exceptional financial need. Perkins Loans are originated and serviced by participating schools and repaid to the school. The government does not insure the loans, but instead provides money to eligible institutions to help fund the loans.
This is a person or business that begins a lawsuit.
These loans are available for parents borrowing for the education of dependent undergraduate children enrolled in school at least half time. “Grad PLUS loans” are also available for graduate and professional students. Unlike Stafford loans, PLUS borrowers are generally required to pass a credit check.
This is a federal measure, updated annually, of the amount of income that a family needs for basic survival.
Paying off all or part of the loan balance before it is due.
A fee charged by a lender if the borrower pays the loan off early.
The amount borrowed.
This is a binding legal document that borrowers sign when they get a student loan. It lists the conditions of the loan and terms under which the borrower agrees to repay the loan. It includes information on how interest is calculated and what deferment and cancellation provisions are available.
Rehabilitation is a process that allows borrowers with defaulted student loans to get out of default by making a required number of on-time payments. Once payments are made, in some cases, the loan holder must attempt to find a lender to purchase the loan. After rehabilitation, the loan is removed from default status and the borrower is eligible for new loans and grants.
This is a bankruptcy process to get relief from debts by making court-supervised payments over a period of time. The alternative is usually liquidation under chapter 7.
Stafford loans are for undergraduate, graduate and professional students enrolled at least half-time. As of July 1, 2010, all federal Stafford Loans are made to students through the Direct Loan program.
State Tuition Recovery Funds (STRFs)
STRFs contain deposits of money collected from schools approved to operate in the state. The funds are disbursed to victimized students under specified conditions. Many states have either a STRF or a bond program to reimburse defrauded students.
A subsidized Stafford loan is awarded on the basis of financial need. For subsidized loans, borrowers are not charged any interest before the repayment period begins or during authorized periods of deferment. In essence, the government “subsidizes” the interest during these periods.
Summons (also called “original notice” or “notice of suit”)
This is a document that is provided at the beginning of the lawsuit to tell the defendant what is being requested and what must be done to respond to the complaint.
A program that allows the government to take your income tax refund if you are in default on a federal student loan. A number of states also have laws that authorize state guaranty agencies to take state income tax refunds.
Total and permanent disability
This means that you are unable to work and earn money because of an illness or injury that is expected to result in death or has lasted for a continuous period of not less than 60 months or can be expected to last for a continuous period of not less than 60 months. You must be totally and permanently disabled in order to qualify for a federal student loan disability cancellation.
A federal (national) law that requires that most lenders, when they make a loan, provide standard form disclosures of the cost and payment terms of the loan. The Truth in Lending Act does not apply to federal student loans, although there are separate disclosures requirements for these loans in the Higher Education Act.
A debt that does not involve collateral.
Unsubsidized loans are not awarded on the basis of financial need. Interest is charged from the time the loan is disbursed until it is paid in full.
Interest rate that changes periodically in relation to an index.
This is a loan on which the interest rate can change over time. The changes can affect the amount of your monthly payments.
Garnishment of the debtor’s wages from the debtor’s employer. The government can collect federal loans through the administrative wage garnishment program. This means that the government can garnish wages without first getting a judgment in court.