Student Loan Terms You Should Know

Student Loan Terms You Should Know Brought to you by: www.overturemarketplace.com and www.collegemoneyinsider.com

Overview
Because a student loan is such a big financial commitment, it’s good for you to know as much as you can about any loans that you take out.
We know that financial terms can be confusing, so we put together a short glossary of student loan terms you should be familiar with.
We’ve also included this list in our free Guide to Smart Borrowing

APR – Annual Percentage Rate
(APR) is the estimated yearly cost of a loan expressed as a percentage. The parameters that factor into the calculation include interest rate, monthly payment, loan term, duration of grace period, duration of deferment, repayment option, and monthly payment during deferment.
In the Student Loan Marketplace, we use a standard calculation for all lenders, allowing for an apples-to-apples comparison of your loan options.

Interest Rate
The rate at which interest will be charged by the lender, expressed as a yearly percentage. Interest accrued is based on the interest rate and the balance of your loan.
There are two main types of interest rates on student loans: fixed and variable . Fixed interest rates remain the same for the loan’s entire term, while variable interest rates adjust periodically according to changes in the index rate (such as the LIBOR and Prime Index). Variable interest rates can change monthly quarterly, or annually.

Total Cost
The estimate of the total amount you will be required to repay over the term of the loan, including principal, interest and fees. For variable rate loans, this amount can fluctuate as the index rate changes.

Monthly Payment
The estimated amount you will repay each month over the life of your loan, as calculated from your remaining loan balance, interest rate and repayment schedule. This can also fluctuate depending on changes in the index rate (for variable loans).

Repayment Option (or Deferment Type)
Your loan’s repayment option determines when you will begin repayment of the money you owe. There are three main repayment options, and many lenders will allow you to choose between the three.

Immediate Repayment Loans
Require you to start payments as soon as the loan is disbursed. If you choose to make payments while you are still in school, you can reduce the total cost of your loan by lowering your outstanding principal.

Interest Only Loans
Require you to repay the interest that accumulates while you are in school. These payments are lower than the in-school payments on an immediate repayment loan, but your principal is not reduced, so the benefit to your total cost is not as great.

Full Deferment Loans
Do not require any payments while you are in school. Deferring your payments results in an increase in the total cost of the loan, as interest accrues and compounds during the deferment period.

Grace Period
A period of time during which you are not required to make payments. Some loans provide a grace period when you graduate, leave school, or drop below half-time status. However, interest accrues during grace periods, so be careful!

Borrower Benefits
Loan features offered by lenders as enticements. Borrower benefits may include interest rate reductions, reductions in loan principal, or fee waivers. Make sure to fully understand the benefits of your loan, as they often come with restrictions or requirements that you must fulfill.

Fees
Many loans have one or more fees that the borrower will be required to pay.
Common examples are Origination Fees, Disbursement Fees and Repayment Fees.
Fees can either be deducted from the amount you borrow or may be added to the approved loan amount. Make sure to check with your lender to understand how the fees will be handled before signing your promissory note!

Get More Info Like This!
Check out www.overturemarketplace.com AND www.collegemoneyinsider.com for information about financial aid, student loans, scholarships, and other ways to pay for college.
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Student Loan Terms You Should Know

by ovtmarketplace on May 16, 2011

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