When you first apply to college, you also go through the process of filing the FAFSA and applying for financial aid. You have to fill out the FAFSA each year you attend college—and if you take out student loans, they might be at the back of your mind the whole time. But after you graduate, you need to stay on top of your loans. (And it doesn’t hurt to know what you’re getting into and what repayment options you have before you sign on, either!) So here are all the financial aid terms you should know before you have to start paying your loans back, including a recap of the important terms you should know when you first apply for aid. It may not be the most fun topic, but it’s important nonetheless!
A recap of financial aid terms you should know
If you’re a FAFSA veteran, these are the key financial aid terms you likely already know. But in case you forgot or are new to the process, here are the terms you need to remember most after you graduate.
Free Application for Federal Student Aid (FAFSA)
The FAFSA is the basic form you fill out for federal and state financial aid. You should file the FAFSA the year before you first enroll in college and each year you attend thereafter (as close to October 1 as possible). You’ll still need your last one or two filled-out FAFSA forms for tax purposes after you’ve graduated.
Master Promissory Note (MPN)
This is a legal document you sign upon completing your FAFSA if you borrow student loans. The MPN lays out the rights, responsibilities, terms, and conditions for loan repayment and can be referred back to for any questions or concerns about your upcoming loan repayments.
Your loans are the money you receive from a state or federal government or a private lender that must be repaid, typically starting six months after you graduate from college. Loans collect interest the longer they need to be paid back and are most often paid back on a monthly schedule.
Direct subsidized loan
This type of loan typically does not require a borrower (you, the student) to pay interest on the loan while they’re still in school or in a grace or deferment period.
Direct unsubsidized loan
This type of loan typically offers students a low fixed rate of interest and often come with more flexible repayment plans. Borrowers do not need to demonstrate financial need to receive this loan.
Direct PLUS loan
If the usual direct loans still don’t cover the cost of your education, a parent is legally allowed to take out this type of loan in their name to help their student pay for school.
Financial aid terms you need to know after graduation
You may not hear much about these terms when you first apply for financial aid, but it’s helpful to know what they mean before you need to start paying back any student loans.
You’ll only have to worry about debt collectors if you’re not consistent in making your loan payments. Collectors will pursue the required payments from you, the borrower, often after a few missed payments.
It’s usually easier to make one loan payment a month rather than multiple, so you may consider consolidating your loans. This requires taking out one additional loan to pay off all the others, then making payments on the one new loan.
Defaulting is the official term used for failing to repay your loan as outlined in your MPN. Typically, defaulting will occur if a payment hasn’t been paid in more than 270 days.
Much like entrance counseling that’s required before you take out a loan, exit counseling will prepare you with all the relevant information you need to be prepared to repay your loans. If financial exit counseling doesn’t give you all the information you need, taking additional financial awareness counseling can fill in the blanks.
Extended Repayment Plan
If you meet the eligibility requirements, this payment plan will allow you to repay your loans over an extended period of 25 years.
After graduation, your loans will fall into a six-month grace period called forbearance in which you can forgo payments. While you don’t have to repay, your loans will still be collecting interest, which adds to your principal balance. It’s often recommended to start making repayments as soon as you’re financially able to, even if your forbearance is not up.
Graduated Repayment Plan
If you signed up for a Graduated Repayment Plan, you’ll start off with lower payments after graduation that will increase every two years. With this plan, payments will be made for up to 10 years, or 10–30 years for consolidated loans.
Income-Based Repayment (IBR) Plan
Some but not all of your loans may qualify for you to receive an IBR Plan, meaning your payments will be based on your income and reasonable for you to be able to meet them.
Interest is an expense charged for borrowing your loans that collects over time until you are able to fully pay off the cost of your loan. It’s calculated based on your principal balance.
A lender is the organization you received your loans from that you are making payments to.
Under certain types of employment—most often with nonprofit and education careers—a student loan holder may qualify to have the remainder of their loans waived after a certain number of years.
Pay As You Earn (PAYE) Plan/REPAYE
These repayment plans set up a borrower to make monthly repayments that are most often equal to 10% of the borrower’s discretionary income; the percentage won’t ever be higher than the standard 10-year repayment plan.
This term refers to the total money lent without accounting for the interest that begins to accrue after the borrower graduates.
Public Service Loan Forgiveness (PSLF)
This forgiveness plan allows your student loans to be waived after 10 years of payments through a qualifying repayment plan if you are working full-time in a “public service” career.
Standard repayment plan
This is the most common repayment plan for federal loans, in which borrowers make monthly, fixed payments for up to 10 years, or between 10–30 years for consolidated loans.
Student loan debt burden
Your burden is considered to be the percentage of your monthly income that has to be paid to your student loans; the smaller the percentage, the less debt burden you’ll have.
Now that you know these terms, you’ll be ready for the responsibility of maintaining and paying off your loans. Getting into student loan debt isn’t ideal, but knowing all the facts and terms can ensure a better future of financial responsibility for you—and at least a little less stress as you journey into your adult life and career.
Not in college yet? Check out All the Important Financial Aid Terms You Need to Know for what you should learn before you enroll!