Glossary of Financial Aid Terms

A B C D E F G H I L M N O P R S T U V W

A

Ability to Benefit  The requirement that each student must be able to benefit from college attendance. For financial aid purposes, applicants must have either received a high school diploma, or general education diploma (GED), or taken and passed an assessment test approved by the government.

Academic Year  The period, during which school is in session, consisting of at least 30 weeks of instructional time. The school year typically runs from the beginning of Sept. through the end of May at most colleges and universities.

Accrue  To accumulate.

Accrual Date  The date on which interest charges on an educational loan begin to accrue. See also Subsidized Loan.

Amortization  The process of gradually repaying a loan over an extended period of time through periodic installments of principal and interest.

Asset  An item of value, such as a family’s business, investment farm net worth, real estate, stocks, bonds, mutual funds, cash, certificates of deposit (CDs), bank accounts, trust funds and other property and investments.

Award Letter  An official document issued by a school’s financial aid office that lists all of the financial aid awarded to the student. This letter provides details on the analysis of your financial need and the breakdown of your financial aid package according to amount, source and type of aid. The award letter will include the terms and conditions for the financial aid and information about the cost of attendance. You are required to sign a copy of the letter, indicating whether you accept or decline each source of aid, and return it to the financial aid office. Some schools call the award letter the “Financial Aid Notification (FAN)”.

Award Year  The academic year for which financial aid is requested (or received).

 B

Bankruptcy  When a person is declared bankrupt, they are found to be legally insolvent and their property is distributed among their creditors or otherwise administered to satisfy the interests of creditors. Federal student loans, however, cannot normally be discharged through bankruptcy.

Borrower  The person who receives the loan.

Budget  See Cost of Attendance (COA).

C

Campus-based Aid  Financial aid programs are administered by the university. The federal government provides the university with a fixed annual allocation, which is awarded by the financial aid administrator to deserving students. Such programs include the Perkins Loan, Supplemental Education Opportunity Grant, and Federal and Montana Work-Study. Note that there is no guarantee that every eligible student will receive funding through these programs, because the awards are made from a fixed pool of money. This is a key difference between the campus-based loan programs and the Direct Loan Program. Do not confuse the two, even though both loans are issued through the schools.

Cancellation  Some loan programs provide for cancellation of the loan under certain circumstances, such as death or permanent disability of the borrower. Some of the Federal student loan programs have additional cancellation provisions. For example, if the student becomes a teacher in certain national shortage areas, they may be eligible for cancellation of all or part of the balance of their educational loans. Repayment assistance is available if you serve in the military; the military pays off a portion of your loans for every year of service.

Consolidation Loan (also called Loan Consolidation)  A loan that combines several student loans into one bigger loan from a single lender. The consolidation loan is used to pay off the balances on the other loans.

Cost of Attendance (COA)  (also known as the cost of education or “budget”) The total amount it should cost the student to go to school, including tuition and fees, room and board, allowances for books and supplies, transportation, and personal and incidental expenses. Loan fees, if applicable, may also be included in the COA. Child care and expenses for disabilities may also be included at the discretion of the financial aid administrator. Schools may establish different standard budget amounts for students living on-campus and off-campus, married and unmarried students and in-state and out-of-state students.

Cumulative G.P.A.  A Cumulative Grade Point Average (G.P.A.) refers to the overall G.P.A., which includes dividing the number of quality points earned in all courses attempted by the total degree-credit hours in all attempted courses.

Custodial Parent  If a student’s parents are divorced or separated, the custodial parent is the one with whom the student lived the most during the past 12 months. The student’s need analysis is based on financial information supplied by the custodial parent.

D

Debt-Management Counseling  Counseling provided to a student about debt and accumulated indebtedness. Counseling is required both before the student receives the first disbursement of the student’s first loan, often referred to as entrance counseling, and when the student is scheduled to complete an academic program, commonly referred to as exit counseling.

Default  A loan is in default when the borrower fails to pay several regular installments on time (i.e., payments overdue by 180 days) or otherwise fails to meet the terms and conditions of the loan. If you default on a loan, the university, the holder of the loan, the state government and the federal government can take legal action to recover the money, including garnishing your wages and withholding income tax refunds. Defaulting on a government loan will make you ineligible for future federal financial aid, unless a satisfactory repayment schedule is arranged, and can affect your credit rating.

Deferment  Occurs when a borrower is allowed to postpone repaying the loan. If you have a subsidized loan, the federal government pays the interest charges during the deferment period. If you have an unsubsidized loan, you are responsible for the interest that accrues during the deferment period. You can still postpone paying the interest charges by capitalizing the interest, which increases the size of the loan. Most federal loan programs allow students to defer their loans while they are in school at least half time. If you don’t qualify for a deferment, you may be able to get a forbearance. You can’t get a deferment if your loan is in default.

Delinquent  If the borrower fails to make a payment on time, the borrower is considered delinquent and late fees may be charged. If the borrower misses several payments, the loan goes into default.

Dependency Status  Determines to what degree a student has access to parent financial resources. Dependent For a child or other person to be considered your dependent, they must live with you and you must provide them with more than half of their support. Spouses do not count as dependents in the Federal Methodology.

Disbursement  The release of loan funds to the school for delivery to the borrower. The payment will be made via EFT (Electronic Funds Transfer) to the school. Loan funds are first credited to the student’s account for payment of tuition, fees, room and board and other school charges. Any excess funds are then paid to the student in form of a check, which is mailed to the student.

Discharge  To release the borrower from his or her obligation to repay the loan. See also Cancellation.

E

Electronic Student Aid Report (ESAR)  An electronic form of the Student Aid Report (SAR).

Eligible Non-Citizen  Someone who is not a US citizen but is nevertheless eligible for Federal student aid. Eligible non-citizens include US permanent residents who are holders of valid green cards, US nationals, holders of form I-94 who have been granted refugee or asylum status and certain other non-citizens. Non-citizens who hold a student visa or an exchange visitor visa are not eligible for Federal student aid.

Emancipated  To release a child from the control of a parent or guardian. Declaring a child to be legally emancipated is not sufficient to release the parents or legal guardians from being responsible for providing for the child’s education. If this were the case, then every parent would “divorce” their children before sending them to college. The criteria for a child to be found independent are much stricter. See Dependency Status.

Enrollment Status  An indication of whether you are a full-time or part-time student. Generally you must be enrolled at least half-time (and in some cases full-time) to qualify for financial aid.

Entrance Interview  See Loan Interviews.

Exit Interview  See Loan Interviews.

Expected Family Contribution (EFC)  The amount of money that the family is expected to be able to contribute to the student’s education, as determined by the Federal Methodology need analysis formula approved by Congress. The EFC includes the parent contribution and the student contribution, and depends on the student’s dependency status, family size, number of family members in school, taxable and nontaxable income and assets. The difference between the Cost Of Attendance (COA)and the EFC is the student’s financial need, and is used in determining the student’s eligibility for need-based financial aid. If you have unusual financial circumstances (such as high medical expenses, loss of employment or death of a parent) that may affect your ability to pay for your education, tell your financial aid administrator (FAA).

F

Federal Supplemental Education Opportunity Grant (FSEOG)  Federal grant program for undergraduate students with exceptional need. FSEOG grants are awarded by the school’s financial aid office, and provide up to $4,000 per year. To qualify, a student must also be a recipient of a Pell Grant.

Federal Work-Study (FWS)  Program providing undergraduate and graduate students with part-time employment during the school year. The federal government pays a portion of the student’s salary, making it cheaper for departments and businesses to hire the student. For this reason, work-study students often find it easier to get a part-time job. Eligibility for FWS is based on need. Money earned from a FWS job is not counted as income for the subsequent year’s need analysis process.

Financial Aid  Money provided to the student and the family to help them pay for the student’s education. Major forms of financial aid include gift aid (grants and scholarships) and self-help aid (loans and work).

Financial Aid Administrator (FAA)  A college or university employee who is involved in the administration of financial aid. Some schools call FAAs “Financial Aid Advisors” or “Financial Aid Counselors”.

Financial Aid Notification (FAN)  See Award Letter.

Financial Aid Package  The complete collection of grants, scholarships, loans and work-study employment from all sources (federal, state, institutional and private) offered to a student to enable them to attend the college or university. Note that unsubsidized Stafford loans and PLUS loans are not considered part of the financial aid package, since these financing options are available to the family to help them meet the Expected Family Contribution (EFC).

Financial Need  See Need.

First-Time Borrower  A first-year undergraduate student who has no unpaid loan balances outstanding on the date he or she signs a promissory note for an educational loan. First-time borrowers may be subjected to a delay in the disbursement of the loan funds. The first loan payment is disbursed 30 days after the first day of the enrollment period. If the student withdraws during the first 30 days of classes, the loan is canceled and does not need to be repaid. Borrowers with existing loan balances aren’t subject to this delay.

Forbearance  During a forbearance the lender allows the borrower to temporarily postpone repaying the principal, but the interest charges continue to accrue, even on subsidized loans. The borrower must continue paying the interest charges during the forbearance period. Forbearance’s are granted at the lender’s discretion, usually in cases of extreme financial hardship or other unusual circumstances when the borrower does not qualify for a deferment. You can’t receive a forbearance if your loan is in default.

Free Application for Federal Student Aid (FAFSA)  Form used to apply for Pell Grants and all other need-based aid. As the name suggests, no fee is charged to file a FAFSA.

G

Garnishment  The practice of withholding a portion of a defaulted borrower’s wages to repay his or her loan, without their consent.

Gift Aid  Financial aid, such as grants and scholarships, which does not need to be repaid.

Grade Point Average (GPA)  An average of a student’s grades, converted to a 4.0 scale (4.0 is an A, 3.0 is a B, and 2.0 is a C). Some schools use a 5.0 scale for the GPA.

Graduate Student  A student who is enrolled in a Masters or PhD program.

Graduated Repayment  A schedule where the monthly payments are smaller at the start of the repayment period and gradually become larger.

Grant  A type of financial aid based on financial need that the student does not have to repay.

Gross Income  Income before taxes, deductions and allowances have been subtracted.

 H

Half-Time Most financial aid programs require that the student be enrolled at least half-time to be eligible for aid. Some programs require the student to be enrolled full-time.

Hold A situation when the institution prevents a student from receiving a Financial Aid check. For example: a delinquent debt owed to Kellogg Community College or a document required by the Financial Aid Office that the student has not yet submitted.

 I

Income  The amount of money received from employment (salary, wages, tips), profit from financial instruments (interest, dividends, capital gains), or other sources (welfare, disability, child support, Social Security and pensions).

Income Protection Allowance (IPA)  An allowance against income for the basic costs of maintaining family members in the home. The allowance is based upon consumption and other cost estimates of the U.S. Bureau of Labor Statistics for a family at the low standard of living.

Independent  An independent student is at least 24 years old as of Jan. 1 of the academic year, is married, is a graduate or professional student, has a legal dependent other than a spouse, is a veteran of the US Armed Forces, or is an orphan or ward of the court (or was a ward of the court until age 18). A parent refusing to provide support for their child’s education is not sufficient for the child to be declared independent. (See also Dependent.)

Institutional Student Information Report (ISIR)  The electronic version of SARs delivered to schools by EDExpress.

Interest: Amount charged to the borrower for the privilege of using the lender’s money. Interest is usually calculated as a percentage of the principal balance of the loan. The percentage rate may be fixed for the life of the loan, or it may be variable, depending on the terms of the loan. All federal loans issued since Oct., 1992 use variable interest rates that are pegged to the cost of US Treasury Bills.

Internal Revenue Service (IRS)  Federal agency responsible for enforcing US tax laws and collecting taxes.

L

Lender  A bank, credit union, savings & loan association, or other financial institution that provides funds to the student or parent for an educational loan. Note: Some schools now participate in the Federal Direct Loan program and no longer use a private lender, since loan funds are provided by the US Government.

Loan  A type of financial aid which must be repaid, with interest. The federal student loan programs (FFELP and FDSLP) are a good method of financing the costs of your college education. These loans are better than most consumer loans because they have lower interest rates and do not require a credit check or collateral. The Stafford Loans and Perkins Loans also provide a variety of deferment options and extended repayment terms.

Loan Consolidation  See Consolidation Loan.

Loan Disclosure Statement  A document that shows the amount of a loan; where, when, and what repayments must be made; the interest rate; and the cost of borrowing that loan.

M

Merit-based  Financial aid that is merit-based depends on your academic, artistic or athletic merit or some other criteria, and does not depend on the existence of financial need. Merit-based awards use your grades, test scores, hobbies and special talents to determine your eligibility for scholarships.

Master Promissory Note  A promissory note for the Federal Perkins Loan and Direct Loan programs that allows borrowers to apply for multiple loans during a student’s attendance at a postsecondary institution.

N

Need  The difference between the Cost of Attendance (COA) and the Expected Family Contribution (EFC) is the student’s financial need — the gap between the cost of attending the school and the student’s resources. The financial aid package is based on the amount of financial need. The process of determining a student’s need is known as need analysis.
COA – EFC = Financial Need

Need-Based  Financial aid that is need-based depends on your financial situation. Most government sources of financial aid are need-based.

New Borrower  See First-Time Borrower.

O

Origination Fee  Fee paid to the bank to compensate them for the cost of administering the loan. The origination fees are charged as the loan is disbursed, and typically run to 3% of the amount disbursed. A portion of this fee is paid to federal government to offset the administrative costs of the loan.

Out-of-State Student  A student who has not met the legal residency requirements for the state, and is often charged a higher tuition rate at public colleges and universities in the state.

Over awards  A student who receives federal support may not receive awards totaling more than $400 in excess of his or her financial need.

P

Parent Contribution (PC)  An estimate of the portion of your educational expenses that the federal government believes your parents can afford. It is based on their income, the number of parents earning income, assets, family size, the number of family members currently attending a university and other relevant factors. Students who qualify as independent are not expected to have a parent contribution.

Parent Loans for Undergraduate Students (PLUS)  Federal loans available to parents of dependent undergraduate students to help finance the child’s education. Parents may borrow up to the full cost of their children’s education, less the amount of any other financial aid received. PLUS Loans may be used to pay the Expected Family Contribution (EFC). There is a minimal credit check required for the PLUS loan, so a good credit history is required. Check with your local bank to see if they participate in the PLUS loan program. If your application for a PLUS loan is turned down, your child may be eligible to borrow additional money under the Unsubsidized Stafford Loan program.

Pell Grant  A federal grant that provides funds of up to $2,340 based on the student’s financial need.

Perkins Loan  The Perkins Loan allows students to borrow up to $3,000/year (5 year max) for undergraduate school and $5,000/year for graduate school (6 year max). The Perkins Loan has one of the lowest interest rates and is awarded by the financial aid administrator to students with exceptional financial need. The student must have applied for a Pell Grant to be eligible. The interest on the Perkins Loan is subsidized while the student is in school.

Prepayment  Paying off all or part of a loan before it is due.

Principal  The amount of money borrowed or remaining unpaid on a loan. Interest is charged as a percentage of the principal. Insurance and origination fees will be deducted from this amount before disbursement.

Private Loans  Education loan programs established by private lenders to supplement the student and parent education loan programs available from federal and state governments.

Professional Judgement (PJ)  For need-based federal aid programs, the financial aid administrator can adjust the Expected Family Contribution (EFC), adjust the Cost of Attendance (COA), or change the dependency status (with documentation) when extenuating circumstances exist. For example, if a parent becomes unemployed, disabled or deceased, the Financial Aid Administrator (FAA) can decide to use estimated income information for the award year instead of the actual income figures from the base year. This delegation of authority from the federal government to the financial aid administrator is called Professional Judgement (PJ).

Promissory Note  The binding legal document that must be signed by the student borrower before loan funds are disbursed by the lender. The promissory note states the terms and conditions of the loan, including repayment schedule, interest rate, deferment policy and cancellations. The student should keep this document until the loan has been repaid.

R

Residency: Based on the Admissions Office criteria for determining a student’s status as a Montana resident, an out of state student, or a foreign student. This determination affects the type and amount of Financial Aid eligibility.

S

Satisfactory Academic Progress (SAP)  To be eligible to receive federal student aid at KCC, a student must make satisfactory academic progress toward your degree objective. See: the Policies and Procedures page on Satisfactory Academic Progress.

Scholarship  A form of financial aid given to undergraduate students to help pay for their education. Most scholarships are restricted to paying all or part of tuition expenses, though some scholarships also cover room and board. Scholarships are a form of gift aid and do not have to be repaid. Many scholarships are restricted to students in specific courses of study or with academic, athletic or artistic talent.

Secured Loan  A loan backed by collateral. If you fail to repay the loan, the lender may seize the collateral and sell it to repay the loan. Auto loans and home mortgages are examples of secured loans. Educational loans are generally not secured.

Selective Service  Registration for the military draft. Male students who are US citizens and are between the ages of 18 and 25 must be registered with Selective Service to be eligible for federal financial aid. If the student did not register and is past the age of doing so (18-25), and the school determines that the failure to register was knowing and willful, the student is ineligible for all federal student financial aid programs. The school’s decision as to whether the failure to register was willful is not subject to appeal. Students needing help resolving problems concerning their Selective Service registration should call 1-847-688-6888.

Separated Marital Status  A separated student is one who is married but is currently living in a separate residence form his/her spouse and intends to file for a divorce.

Servicer  An organization that collects payments on a loan and performs other administrative tasks associated with maintaining a loan portfolio. Loan servicers disburse loans funds, monitor loans while the borrowers are in school, collect payments, process deferments and forbearances, respond to borrower inquiries and ensure that the loans are administered in compliance with federal regulations and guarantee agency requirements.

Special Circumstances  A formal request to have a financial aid administrator review your aid eligibility and possibly use Professional Judgment to adjust the figures. For example, if you believe the financial information on your financial aid application does not reflect your family’s current ability to pay (e.g., because of death of a parent, unemployment or other unusual circumstances), you should definitely request a review. The financial aid administrator may require documentation of the special circumstances or of other information listed on your financial aid application.

Stafford Loans  Federal loans that come in two forms, subsidized and unsubsidized. Subsidized loans are based on need; unsubsidized loans aren’t. The interest on the subsidized Stafford Loan is paid by the federal government while the student is in school and during the 6 month grace period. The Subsidized Stafford Loan was formerly known as the Guaranteed Student Loan (GSL). The Unsubsidized Stafford Loan may be used to pay the Expected Family Contribution (EFC).

Undergraduates may borrow up to $23,000 ($2,625 during the freshman year, $3,500 during the sophomore year and $5,500 during the third, fourth and fifth years) and graduate students up to $65,500 including any undergraduate Stafford loans ($8,500 per year). These limits are for subsidized and unsubsidized loans combined. The difference between the subsidized loan amount and the limit may be borrowed by the student as an unsubsidized loan.

Higher unsubsidized Stafford loan limits are available to independent students, dependent students whose parents were unable to obtain a PLUS Loan and graduate/professional students. Undergraduates may borrow up to $46,000 ($6,625 during the freshman year, $7,500 during the sophomore year and $10,500 during each subsequent year) and graduate students up to $138,500 including any undergraduate Stafford loans ($18,500 per year). These limits are for subsidized and unsubsidized loans combined. The amounts of any subsidized loans are still subject to the lower limits.

Student Aid Report (SAR)  Report that summarizes the information included in the FAFSA and must be provided to your school’s Financial Aid Office. The SAR will also indicate the amount of Pell Grant eligibility, if any, and the Expected Family Contribution (EFC). You should receive a copy of your SAR four to six weeks after you file your FAFSA. Review your SAR and correct any errors on part 2 of the SAR. Keep a photocopy of the SAR for your records. To request a duplicate copy of your SAR, call 1-800-4-FedAid.

Student Contribution (SC)  The amount of money the federal government expects the student to contribute to his or her education and is included as part of the Expected Family Contribution (EFC). The SC depends on the student’s income and assets, but can vary from school to school. Usually a student is expected to contribute about 35% of his or her savings and approximately one-half of his summer earnings above $2,250.

Subsidized Loan  With a subsidized loan, such as the Perkins Loan or the Subsidized Stafford Loan, the government pays the interest on the loan while the student is in school, during the six-month grace period and during any deferment periods. Subsidized loans are awarded based on financial need and may not be used to finance the family contribution. See Stafford Loans for information about subsidized Stafford Loans. See also Unsubsidized Loan.

T

Title IV Loans  Title IV of the Higher Education Act of 1965 created several education loan programs which are collectively referred to as the Federal Family Education Loan Program (FFELP). These loans, also called Title IV Loans, are the Federal Stafford Loans (Subsidized and Unsubsidized), Federal PLUS Loans and Federal Consolidation Loans.

Title IV School Code  When you fill out the FAFSA you need to supply the six-character identifier Title IV Code for each school to which you are applying. MSU-Northern’s code is 002533.

Tracking Letter  A computer-generated letter from the Financial Aid Office which notifies a student of documentation required for his/her financial aid file.

U

Undergraduate Student   A student who is enrolled in a Bachelors program.

Unearned Income  Interest income, dividend income and capital gains.

Unmet Need  In an ideal world, the FAO would be able to provide each student with the full difference between their ability to pay and the cost of education. Due to budget constraints the FAO may provide the student with less than the student’s need (as determined by the FAO). This gap is known as the unmet need.

Unsecured Loan  A loan not backed by collateral, representing a greater risk to the lender. The lender may require a co-signer on the loan to reduce their risk. If you default on the loan, the co-signer will be held responsible for repayment. Most educational loans are unsecured loans. In the case of federal student loans, the federal government guarantees repayment of the loans. Other examples of unsecured loans include credit card charges and personal lines of credit.

Unsubsidized Loan  A loan for which the government does not pay the interest. The borrower is responsible for the interest on an unsubsidized loan from the date the loan is disbursed, even while the student is still in school. Students may avoid paying the interest while they are in school by capitalizing the interest, which increases the loan amount. Unsubsidized loans are not based on financial need and may be used to finance the family contribution. See Stafford Loans for information about unsubsidized Stafford Loans. See also Subsidized Loan.

Untaxed Income  Contributions to IRAs, Keoghs, tax-sheltered annuities and 401k plans, as well as worker’s compensation and welfare benefits.

US Department of Education (ED or USED)  Government agency that administers several federal student financial aid programs, including the Federal Pell Grant, the Federal Work-Study Program, the Federal Perkins Loans, the Federal Stafford Loans and the Federal PLUS Loans.

V

Verification  Verification is a review process in which the Financial Aid Office determines the accuracy of the information provided on the student’s financial aid application. During the verification process the student and parent will be required to submit documentation for the amounts listed (or not listed) on the financial aid application. Such documentation may include signed copies of the most recent Federal and State income tax returns for you, your spouse (if any) and your parents, proof of citizenship, proof of registration with Selective Service, and copies of Social Security benefit statements and W2 and 1099 forms, among other things.

Financial aid applications are randomly selected by the Federal processor for verification, with most schools verifying at least 1/3 of all applications. If there is an asterisk next to the Expected Family Contribution (EFC) figure on your Student Aid Report (SAR), your SAR has been selected for verification. Schools may select additional students for verification if they suspect fraud. Some schools undergo 100% verification.

If any discrepancies are uncovered during verification, the financial aid office may require additional information to clear up the discrepancies, and/or make corrections.

If you refuse to submit the required documentation, your financial aid package will be cancelled and no aid awarded.

Veteran  For Federal financial aid purposes such as determining dependency status, a veteran is a former member of the US Armed Forces (Army, Navy, Air Force, Marines or Coast Guard) who served on active duty and was discharged other than dishonorably (i.e., received an honorable or medical discharge). You are a veteran even if you serve just one day on active duty (not active duty for training) before receiving your DD-214 and formal discharge papers. (Note that in order for a veteran to be eligible for VA educational benefits, they must have served for more than 180 consecutive days on active duty before receiving an honorable discharge. There are exceptions for participation in Desert Storm/Desert Shield and other military campaigns.)

ROTC students, members of the National Guard, and most reservists are not considered veterans.

Since the 1995-96 academic year, a person who was discharged other than dishonorably from one of the military service academies (the U.S. Military Academy at West Point, the Naval Academy at Annapolis, the Air Force Academy at Colorado Springs or the Coast Guard Academy at New London) is considered a veteran for financial aid purposes. Cadets and midshipmen who are still enrolled in one of the military service academies, however, are not considered veterans. According to the US Department of Education’s Action Letter #6 (Feb. 1996), “a student who enrolls in a service academy, but who withdraws before graduating, is considered a veteran for purposes of determining dependency status”

Having a DD-214 does not necessarily mean that you are a veteran for financial aid purposes. As noted above, you must have served on active duty and received an honorable discharge.

W

W2 Form  The form listing an employee’s wages and tax withheld. Employers are required by the IRS to issue a W2 form for each employee before Feb. 28.

Work Study  See Federal Work-Study.