Everyone has different college experiences, but there is one thing that brings all students together. You guessed it, we’re talking about everybody’s favorite twelve-letter, two-word phrase: Financial aid.
Discussing and understanding financial aid can be difficult, thanks to the often confusing technical language that’s used. Luckily, we’re here to help!
1. Financial Aid Notification
Your financial aid notification is a document that you will receive from the institutions you applied for or are attending. The letter will typically show you what amount of financial aid you have available, cost of attendance, and your expected family contribution.
Example: “I just got my financial aid notification from UIUC. I’ve never opened an email so fast in my life.”
A bursar is an administrator that handles the financial affairs of a university. They will typically oversee any payments related to housing, tuition, and, yes, financial aid.
Example: “The University Bursar is the office that handles all of UIUC’s financial affairs. What, did you think it was just one person in a dimly lit room with an abacus?”
3. Cost of Attendance
Cost of attendance is the total amount of expenses for college before financial aid is considered. It includes tuition, fees, housing, books and supplies, and miscellaneous expenses. This information can usually be found in the financial aid notification you will receive from the colleges you applied to.
Example: “I will tell you one thing: UIUC does not have as high a cost of attendance as Harvey Mudd.”*
4. Debt Consolidation
This one is more of a general financial term, but when dealing with loans (e.g., student), more information is always better than less. Debt consolidation is a process of refinancing where you take out one loan to pay the costs of another. The general idea is that debt consolidation can reduce several different loans into one loan. This can potentially make your loans easier to manage, but there’s also a chance that you’ll end up paying more in the long run, especially if you’re extending your repayment period. Just one more reason to make sure you understand the terms and conditions of your loans!
Example: “Debt consolidation: it’s basically loan Inception.”
Another term related to loans (actually, a lot of these are). To default on a loan is simply to fail to pay the loan in the agreed-upon manner, which has usually been outlined in a Master Promissory Note. After more than 270 days of non-payment on a federal direct student loan, for example, it will default. If a student loan is defaulted on, it can result in legal consequences and alter your eligibility status for future financial aid.
Example: “Wait, has it been 269 days since I last paid my student loans? Oh, good, then I won’t default on them.”
Deferment is a process by which your loans are temporarily postponed. With direct subsidized loans, you don’t have to worry about interest during this time, but be careful—with unsubsidized or PLUS loans, while you won’t have to make payments during your deferment period, interest will still accrue.
Example: “My deferment just started, but it will only last a little while. On the bright side, it’s a subsidized loan, so no interest!”
7. Direct Subsidized Loan
A direct subsidized loan is a type of federal loan that does not require the recipient to pay interest while in school (as long as they are in a degree-seeking program and enrolled at least part-time) or during a deferment period.
Example: “Wow, that’s crazy, Deferment-Quote Person! My direct subsidized loan also doesn’t generate interest (as long as I’m in school). High five!”
8. Discretionary Income
At last—a term that isn’t (directly) about loans! Discretionary income is usually considered a factor in determining a student’s eligibility for payment plans. The amount of discretionary income is usually the difference between your household’s annual income and 150% of the poverty guidelines related to your family’s size and the state they live in. That’s a lot of math, but it’s important math!
Example: “Thanks to my discretionary income, I was able to buy 13 servings of waffle fries at the Memorial Stadium.”
9. Expected Family Contribution (EFC)
Your Expected Family Contribution is a measure that schools use to compare your family’s finances to that of other applicants. This figure represents what your family may be able to contribute toward your annual Cost of Attendance. It is used to determine eligibility for certain financial aid programs. You can usually find the exact number in your Student Aid Report and financial aid notification.
Example: “I got my financial aid notification back, and it says that my expected family contribution is [insert monetary figure here]! What else have my parents been keeping from me?”
10. Extended Repayment Plan
This one’s pretty straightforward. An extended repayment plan lets you pay your loans over a longer period of time—up to 25 years. The ability to use this type of plan does require specific eligibility, so not everyone will be able to use it.
Example: “The year is 2045. The machines have taken over the earth, and thanks to my extended repayment plan, I’m about to pay off the last of my student loans.”
11. 529 Savings Plans
A 529 savings plan is a college savings plan that can offer tax benefits. There are two types of 529 Savings Plans:
- College Savings Plans – Invests after-tax contributions into mutual funds. The amount of money in this type of plan can go up or down, depending on the performance of the investments.
- Prepaid Tuition Plans – Allows you to pay part or all of the costs associated with in-state public colleges, along with more than 250 private colleges nationwide.
Example: “Your 529 savings plan? Yeah, that’ll help offset the price of college.”
12. Federal Pell Grant Program
The Pell Grant is a staple of higher education finances. The largest grant program in the country, it is designed to help students coming to college from low-income households. Not exactly sure what a grant is? We’ve got you covered—that definition is next!
Example: “Pell Grants don’t have anything to do with pelicans, do they? No, but they help students attend university? Yeah, that does seem more relevant here.”
A grant is a type of financial award that doesn’t have to be repaid.
Example: “Wait, you’re telling me this Pell Grant doesn’t ever have to be repaid? That’s amazing. And it still doesn’t have anything to do with pelicans … the more you know!”
Forbearance is a period of time in which your loan payments are temporarily halted or reduced in amount. Sounds like deferment, right? Forbearance is a related concept, but with a significant difference: Interest still accrues during the forbearance period.
Example: “Wait, you think we’re halting loans for a bear named Ance? No, we’re trying to halt your student loans by taking a forbearance period. Geez …”
15. Free Application for Federal Student Aid (FAFSA)
The FAFSA stands for the “Free Application for Federal Student Aid.” It is a form that college students fill out on an annual basis that determines their eligibility for federal financial aid, as well as state and private awards. If you’re curious about the FAFSA or just plain confused about this document that everyone seems to be talking about, consider taking a look at one of our previous articles.
It’s also worth noting that the FAFSA isn’t the only road to financial aid. The Alternative Application for Illinois Financial Aid (or Alternative Application), for example, can be particularly helpful for undocumented or transgender students.
Example: “I know I have to fill out the FAFSA, but Seinfeld just came to Netflix. These decisions are destroying my brain!”
16. FSA ID
Your FSA ID is a username and password that will allow you to access the U.S. Department of Education’s online systems. It will also act as your online signature for the documents that you will fill out through these systems. The FSA ID is a super important part of filling out the FAFSA, so make sure to remember your information.
Example: “Oh, no! I can’t remember my FSA ID! I guess I’ll have to request a password change.”
Another general financial term, but one that will serve you well if you understand it in full. Interest is a payment, typically in the form of a percentage, that a borrower must pay to a lender in addition to the original, borrowed sum. Loans typically involve interest payments, so pay close attention to the percentages you’ll have throughout the repayment process.
Example: “I am both interested in reading Don Quixote and accruing interest on the loan that’s allowing me to take a class on the works of Miguel de Cervantes.”
A loan is a type of financial aid that is borrowed by the recipient and expected to be repaid to the loaner, typically with interest.
Example: “Taking out a student loan might be necessary for me in the near future!”
19. Master Promissory Note (MPN)
A Master Promissory Note (MPN) is a legal document that is usually associated with the payment of loans. The MPN acts as a legal document that details your rights as the loan borrower and any terms and conditions that are associated with the loan.
Example: “Make sure to read your Master Promissory Note carefully; you’ll be working with its conditions for a long time to come.”
The term “merit-based” typically refers to a student’s demonstrated skill in academics or a related field. The term is most often connected to scholarships.
Experience: “Merit-based scholarships exist! Oh, boy! My hard work in my English classes will finally pay off, literally!”
21. Need-Based Financial Aid
Need-based financial aid is a system of monetary awards that are given to a student if this student meets certain eligibility and financial requirements. Your financial aid notification will indicate whether you’re eligible for need-based financial aid.
Example: “So, I still haven’t looked at my financial aid notification, but I might be eligible for some need-based financial aid. Should I look at it now? … Probably.”
22. Residency Requirements
Residency requirements are rules set up by colleges and universities to determine who receives in-state or out-of-state tuition costs. Typically, if a student does not have residency established in the state their college is in, they may establish residency over a period of time where they are not attending said institution.
Example: “Okay, so I want to go to school at UIUC, but I live in Oregon. What are the residency requirements to receive in-state tuition?”
23. Rehabilitated Loan
A rehabilitated loan is a loan that has been taken out of default, usually through a process involving the borrower and the loan holder.
Example: “Okay, so we have got to get this loan out of default and turn it into a rehabilitated loan. Who do we have to call to get that done?”**
Another common type of financial aid, scholarships are usually given to students based on their academic record, merit, or other unique attributes. Like grants, the money awarded in a scholarship typically does not have to be repaid.
Example: “I received a scholarship from the Society of Underwater Basket Weavers. I know the organization isn’t real, and neither is the money, but it sure felt great to be recognized.”
25. Student Aid Report (SAR)
A Student Aid Report (SAR) is received after you fill out the FAFSA. This document summarizes the information you provided in the FAFSA, outlines your Expected Family Contribution (EFC), and determines your eligibility for Pell Grants.
Example: “I filled out my FAFSA and my Student Aid Report came in soon afterward. No, I still don’t really want to look at it.”
26. Student Loan Debt Burden
Your student loan debt burden is the percentage of your monthly income that is dedicated to paying off student loans.
Example: “My student loan debt burden is pretty low, and I’m very grateful for that!”
27. Unsubsidized Loan
The opposite of a Subsidized Loan! No, we’re just kidding—that wouldn’t be very helpful. An unsubsidized loan is a type of loan borrowed through the Direct Loan Program that has a low interest rate and various repayment options. If you take out this type of loan, you are responsible for paying all interest associated with it.
Example: “Because I have unsubsidized loans, I’m responsible for paying interest. I’ve got a much better personality than the example person above me with the subsidized loan, though.”
Work-study is a type of financial aid in which students receive funds for school by working certain part-time jobs. Payment for the work you do throughout your Work-Study program will be used to help cover the costs of your education.
Example: “As part of my work-study program, I’m working at the university library. No, for the fiftieth time, I can’t just give you free books; you have to come in and get them yourself!”
Applying for and receiving financial aid is a complicated process, and even with these common financial aid definitions, you’ll most likely come across words, phrases, and new types of financial aid that will further your confusion. For more information, consider visiting the Office of Federal Student Aid’s website; they have an even greater number of terms defined for your understanding.
If you ever find yourself having questions that go beyond the topics covered in this article, consider contacting UIUC’s own Office of Student Financial Aid; they’ll be glad to assist you. We hope these common financial aid definitions have helped set your mind at ease. Financial aid can seem intimidating, but there are all kinds of resources available to make the process easier.
** Hint: It’s not the Ghostbusters.