10 Student Loan Debt Terms to Know – Part 2

| For Employees | September 11, 2020

The pandemic is causing financial problems for people in several ways. Many have suffered from income loss due to furloughed or terminated jobs.  Those with federal student loan debts can now receive temporary relief from monthly payments through the CARES Act. However, borrowers with private loans must continue to make their regular payments.

There can be jargon or confusing terminology associated with loans. If you find yourself confused by some of these keywords or phrases, you can reference this overview of important student loan debt terms to know.

1. Annual percentage rate (APR)

This is the annual percentage rate for your student loan, including any fees and interest. Most federal loans have a fixed interest rate – the amount you will pay during the life of the loan. Private loans could offer a fixed rate or a variable interest rate that can change and affect the monthly debt payment.

2. Autopay

You will receive a discount on the interest rate of your loan – usually 0.24% or more – if you let the loan serving company withdraw directly from your bank account for the monthly payment.

3. Capitalization

If you stop making payments on your loan without approval from the federal government or servicing company, the unpaid interest could be added to the principal balance. You will pay interest on this new amount going forward.

4. Consolidation

Borrowers with several student loans can have them consolidated into one payment through the Department of Education. The interest rate will be the same, but there will be one monthly payment versus two or three, making it easier not to miss a payment.

5. Default/delinquent

If you do not make a payment on a federal student loan for 270 days, or a private student loan for 120 days, the loan is marked delinquent. The loan serving company can sue, garnish wages, or seize tax refunds to recover the debt. If you cannot make your monthly payment, immediately contact the loan serving company to work out a plan, so you do not reach default.

6. Deferment

Borrowers who cannot presently make their monthly loan payment, but can resume making payments soon, can ask their loan serving company for a delay. It is a good option for subsidized federal student loans. If additional time is needed, ask the loan servicing company about an income-driven payment plan.

7. Forbearance

Borrowers can ask the loan servicing company for permission to suspend their monthly payment temporarily – for up to 12 months. Usually, borrowers have to show evidence of financial hardship to receive forbearance. Loan experts say a better option to request loan deferment. In either case, interest will continue to collect on the loan amount owed.

8. Grace period

After federal student loan borrowers graduate, leave school or take less than half the normal enrollment load, they receive a grace period before they need to make monthly payments. Borrowers with private loans may not have this same benefit. Making payments during the grace period helps avoid interest capitalization.

9. Loan forgiveness

Borrowers who qualify for the Department of Education’s loan forgiveness program could receive part, or full, relief of continued loan payments. Learn more about debt forgiveness programs in our recent blog post.

10. Master promissory note (MPN)

People who take federal student loans are required to sign an MPN. This note holds borrowers accountable for paying back their loans, including fees and interest. The note allows borrowers to take out additional student loans for a period of up to 10 years.

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