Financial Aid/Indebtedness,
Acronyms & Terminology

• Glossary of Terms

Accrued Interest: Interest that is allowed to accumulate and becomes payable in installments when the principal is due.

Adjustable Rate: A loan with a variable interest rate. When the rate changes (quarterly, semi -annually, or annually), the monthly payment is altered accordingly. Advantages: lower monthly payments, lower overall costs if rates drop, and annual increases are usually controlled. Disadvantages: vulnerability to rate hikes, difficulty of budgeting for increases, and (sometimes) lack of availability.

Adjusted Gross Income: Income after all deductions, such as social security payments, federal, state, and local taxes; health and life insurance premium payments, and retirement benefits. Also referred to as net income.

Annual Percentage Rate (APR): Some lenders charge lower interest but add high fees. The APR allows you to compare loans on comparable terms. It combines fees with a year of interest charges to give you the 'true cost of the loan'.

Balloon Payment: Payment on a loan which starts at one level and gets increasingly larger as outlined in signed contract or promissory note.

Bankruptcy: A person who being unable to meet his or her financial obligations has been declared by a decree of the court to be bankrupt and whose property becomes liable to administration under the Federal Bankruptcy Law.

Borrower: Any "legal entity" who obtains funds from a 'lender' and who must repay these funds at a specified future date. 'Me borrower signs a note as evidence of the indebtedness and the agreement to repay the funds according to the specified terms.

Cancellation: Provision under which the loan need not be repaid, usually because of the borrower's death or-total disability. It is important to note that while all federal loans maintain cancellation provisions, most private loans do not. Cancellation also refers to programs that repay loans or portions of loans when borrowers participate is specified activities, such as practicing in designated specialties and geographic areas.

Cash Flow Projection: The estimate of what your income and expenses will be for a specified period in the future.

Collateral: Security toward repayment of a loan (e.g. automobiles are considered the retrievable security toward the related car loan). Federal educational loans and most private educational loans do not require collateral.

Compounded (or Capitalized) Interest: Accumulated and unpaid interest is added to the principal to create a new and higher principal balance.

Consolidation: An available option for the borrower to combine certain federal loans, with varying interest rates, into a single loan with one interest rate. Advantages include the provision of several repayment options, reduced monthly payments and the ease of making one payment for multiple loans. Disadvantages include possible increase of interest rate and increased total repayment due to extension of maximum repayment period.

Co-Signers: When lenders want additional assurance that the loan will be repaid, they may require someone with good credit to cosign (guarantee) the note. The co-signer is responsible for repayment of the loan in the event that the borrower is unwilling or unable to do so.

Credit Bureau: An agency that compiles and distributes credit and personal financial information to prospective creditors. Information supplied by credit bureaus includes prospective borrower's current address, length and place of employment, number of accounts, balance and payment behavior on all accounts. Note: Anyone has the right to request a copy of their report and to revise out of date or incorrect information. Credit bureaus typically charge a fee for an individual's credit report, but there is no charge if you have been denied credit because of the information contained in your file.

Default: Failure to meet financial obligations on maturity of notes or contractual agreements. Defaults are recorded on an individual's permanent credit record and that individual is subject to lawsuit.

Deferment: Postponement of loan repayment for designated periods of time, usually due to participation in a specified activity (e.g. internship or residency). The activities or conditions under which a borrower may apply for a deferment are specified in the borrower's promissory note and vary between loan programs. Borrowers are responsible for formally requesting a deferment, filing the appropriate forms annually, and obtaining the approval of the lender.

Deferred Interest: The extension of interest payments while the borrower is not gainfully employed until such time that the borrower becomes a wage earner. This benefit is generally characteristic of federal or state guaranteed student loans.

Delinquency: Payment has not been received according to the terms of the repayment agreement.

Disclosure Statement: A written explanation of the "bottom line" cost of a loan including interest charges, origination fees, and any other finance charges incurred by the borrower.

Educational Expenses: Includes tuition and fees, books and supplies, food, room or housing, transportation, clothing, medical and dental expenses. Educational expenses do not include costs incurred for marriages, honeymoons, divorces, vacations, and expenses not directly related to or necessary for the successful completion of the M.D. program.

Fixed Expense: An established required payment (e.g. rent, mortgage, automobile loan, student loan payments). The amount of the payment does not vary from one month to the next.

Fixed Interest Rate: Interest that does not change during the term of the loan. As a result, monthly payments stay the same over the life of the loan. Advantages include ease in budgeting payments, no surprises., and no increase in the cost of the loan. Disadvantages include possibly higher level rates, even in a decreasing interest rate market.

Forbearance: A formal arrangement between lenders and borrowers whereby the lender agrees to postpone repayment of principal and interest or accept lower monthly payments for a specified period of time. In instances where the borrower experiences economic difficulty, the forbearance provision helps avoid delinquency and default. Interest accrues on all, including subsidized, loans during forbearance periods. Borrower is responsible for repayment of accruing interest, but may elect to include the accumulating interest in the postponement of payment provisions. Note: Accumulation and possible capitalization of unpaid interest during forbearance increases the total cost of the loan.

Guarantee Agency: The financial service organization that I guarantees' payment of the loan to the lenders (even in instances where the borrower is unwilling or unable to repay the borrowed funds). 'Guarantors' include the U.S. Department of Health and Human Services, U.S. Department of Education, state agencies, and for private educational loans, insurance companies.

Grace Period: The period of time that begins on the day that the educational loan borrower ceases to be enrolled at least half-time, and during which time payment is postponed according to the provisions of the original agreement. The grace period ends on the day the repayment period begins. Grace periods vary between loan programs.

Gross Income: Total salary before deductions (e.g., social security, taxes).

Holder: The holder of a loan is any organization that owns your promissory note. 'Me holder may be the lender from which you originally borrowed the loan. However, lenders often sell loans to other organizations, thereby transferring ownership of your promissory note(s). The organization that purchases your promissory note is the holder, and the entity to which you are obligated to make loan payments.

Installment Loan: You borrow the money all at once and repay it in set amounts on a regular schedule. These loans are also called 'closed-end loans' because they are paid off by a specific date.

Insurance Fee: A fee, typically deducted from the principal at the time funds are disbursed, applied to default, disability, and death claims. Also called a 'Guarantee Fee'.

Interest: The cost of borrowing money represented by a percentage of the principal, computed for a given period of time.

Legal Rate of Interest: The maximum rate of interest (depending on the kind of transaction) that is permitted by the laws of the state having jurisdiction over the legality of a transaction. Interest in excess of this legal rate is termed usury.

Lender: The entity that provides funding that can be used now, with the agreement that these funds will be repaid later at a cost incurred by the 'borrower'.

Maturity Date: The date upon which a promissory note becomes due and payable.

Maximum Loan Limits: The total amount that an individual is allowed to borrow, under each loan program, on an annual and aggregate basis. Note: Aggregate loan maximums include the amounts borrowed during undergraduate and graduate education.

Net Income: Refer to 'Adjusted Gross Income'.

New Borrower: Varies according to specific loan program. Identifies individuals who have not participated in a designated loan program before a specified date. Example: someone in the Federal Family Education Loan (FFEL) Program who, on the date of the loan application, had no outstanding balance on any Stafford (GSL) or Supplemental Loans for Students (SLS), and whose first loan disbursement was made on or after July 1, 1993.

Origination Fee: The amount charged by the lender for processing a loan. This fee is deducted automatically from the principal.

Payout Note: Conversion of the Interim Note or Notes to payout status. At this point the borrower begins to repay the principal with interest on the loan. The repayment schedule is negotiated prior to the issuance of the Payout Note.

Prepayment: This refers to paying off a loan ahead of the schedule that has been established by the lender. The advantage of doing so is that it reduces the total cost of the loan. All federal and most private loans allow for prepayment without penalty.

Primary Care: Most often refers to practice in one of four designated specialties (i.e. family medicine, general internal medicine, general pediatrics, and preventive medicine), but for some programs may be extended to include general medicine/ pediatrics and obstetrics/gynecology.

Principal: The face value of the loan or the original amount of borrowed funds. It is upon the principal amount that interest may be charged.

Promissory Note: A negotiable instrument which is evidence of a debt contracted by a borrower from a creditor known as a lender of funds. If the instrument does not have all the qualities of a negotiable instrument, it cannot be legally transferred from one person to another. Information given on a promissory note includes: amount of loan; interest rate of the loan; notice of responsibility for collection costs; repayment terms; grace, deferment, forbearance and cancellation provisions.

Recordation: All loans and contracts are recorded locally or federally as standing legal obligations until terminated.

Refinancing Options: Acquiring one larger loan to pay off and combine a number of smaller loans. Refer to 'Consolidation'.

Repayment Options: The amount and timing of repayment. For example, Equal Installments-scheduled periodic (e.g. monthly) payments of the same amount; Graduated Repayment-smaller loan amounts in the early years of repayment, with larger payments over time; Income-Sensitive repayment-amount of scheduled payment changes with borrower's income, so that repayment installments fluctuate as the borrower's income increases and decreases.

Repayment Period: The amount of time the borrower is granted to pay off a loan in its entirety. The maximum repayment period typically excludes periods of grace, deferment and forbearance.

Repayment Schedule: Outlines the terms. time period and frequency (e.g. monthly) under which a loan will be repaid. Repayment schedules include information about the interest rate, interest provisions (e.g. simple, compound), schedule of payments, amount of each payment and date on which the loan must be repaid in its entirety.

Secondary Market: An agency that purchases loans from lenders, thereby becoming the 'Holder' of the borrower's promissory note.

Servicer: Agency designed to undertake designated responsibilities for the lenders or holders of loans. These responsibilities include billing, processing deferment forms and forbearance requests, sending out loan notices and responding to borrower inquiries. When a lender or holder uses a loan servicer, the borrower sends all payments, deferment forms, forbearance documentation, and other correspondence to the servicing agency, not to the lender.

Simple Interest: Interest is based on only the amount of the original loan. (e.g., a $5,000 loan at 10% simple interest will only accrue $500 in interest annually.)

Subsidized: Interest is paid by the government and therefore does not accrue to borrower during specified periods of the loan (e.g., during grace and deferment periods).

Unsecured Loan: Loan that is made solely on the borrower's promise to pay.

Unsubsidized: Interest accrues to borrower's account, starting on the date the funds are disbursed.

Variable Expense: Expense for which the amount may change from one month to the next (e.g. utilities, clothes, etc.).

Variable Interest: Interest rate fluctuates at specific intervals over the life of the loan. Fluctuations are usually tied to certain monetary measures such as the prime rate of interest or annual or quarterly average on U.S. treasury bills.