MD Program

Contact Financial Services

1216 MERF
Iowa City, Iowa 52242-2600
Phone:(319) 335-8059
Fax: (319) 335-8643

  • Glossary of Financial Terms

    The following is a list of consumer finance terms and definitions. Not all of them relate to student loans. However, a familiarity may be helpful in future financial transactions.

    Accrued Interest
    Interest which accrues on the loan and is payable by the borrower or federal government. Interest is calculated on the unpaid principal balance and becomes “accrued interest.”
    Amortization
    The gradual reduction of a loan debt by periodic installment (usually monthly) payments of principal and interest.
    Balloon Payment
    The last payment of a loan that is much larger than the preceding payments. If there is to be a balloon payment, it should be clearly stated in the loan contract.
    Bankruptcy
    A legal action in which a person who is unable to meet financial obligations is declared bankrupt by a decree of the court; under the Federal Bankruptcy law this person’s property becomes liable to administration to satisfy creditors. The filing of bankruptcy will not, in most cases, discharge your educational debt.
    Capitalized Interest
    Unpaid interest amounts that are added to the principal amount borrowed; the total becomes the new principal balance.
    Collateral
    Something of value pledged as a security for a loan. Banks do not require collateral on all loans. No Federal educational loans require collateral; some require endorsement/co-signer
    Collection Agency
    A company that attempts to collect delinquent or defaulted loans. Compounded Interest
    The frequency with which interest is computed and added to the principal to arrive at a new balance.
    Consolidation
    Combining one’s loans by the process of selling and transferring all loans to one holder. This usually extends repayment over a longer period of time and lowers the total monthly payment.
    Cosigner
    A second credit-worthy party who is required to sign a promissory note for a loan with a borrower who has no collateral or credit history; this party, by signing, guarantees that the loan will be repaid if the borrower defaults.
    Credit Bureau
    An agency that compiles and distributes credit and personal information to creditors. Such information may include payment habits, number of credit accounts, balance of accounts and length and place of employment. You have the right to examine your credit file, and to explain or correct information.
    Default
    The failure of a borrower to make an installment payment when due, or to meet other terms of the promissory note, and it is reasonable to conclude that the borrower no longer intends to honor the obligation to repay.
    Deferment
    An approved postponement of payment for a specified period.
    Delinquent
    The borrower fails to make an installment payment when due, or to meet other terms of the promissory note.
    Disbursement date
    The date the loan check is issued by the lender.
    Disclosure Statement
    Statement of the actual cost to the borrower of a loan, that is, the interest rate and any additional finance charges. This must be presented to the borrower by the lender. It lists details of the repayment agreement, where, when, and what size installments will be owed, interest terms, types of credit insurance, and other items relevant to the loan.
    Economic Hardship
    A borrower situation involving financial difficulty, under which the borrower may be granted a deferment or forbearance.
    Fixed Interest
    Rate of interest that does not change during the life of the loan, is determined at the time that the loan is negotiated, and is given in the disclosure statement and the promissory note.
    Forbearance
    A temporary postponement or reduction of payments, approved in advance by the lender, for a borrower who experiences financial hardship. Usually interest accrues and is the borrower’s responsibility to pay during the period of forbearance.
    Garnishment
    The withholding of a specified amount from a delinquent or defaulted borrower’s wages or salary to pay a creditor.
    Grace Period
    A period of time, normally a 6, 9 or 12-month period, before the borrower enters repayment.
    Guarantee Agency
    A state or private non-profit agency that administers a student loan insurance program.
    Guarantee Fee
    An administrative fee charged by the guarantor for each loan it guarantees.
    Holder
    The entity which holds a legally effective promissory note and which has the right to collect from the borrower.
    Installment Note
    A loan that is to be repaid in equal installments (usually due monthly or quarterly) over a set period of time.
    Interest
    The price paid or fee charged for the use of borrowed money, computed as a percentage of the principal borrowed for a given period of time.
    Maturity Date
    The date upon which a promissory note becomes due and payable.
    Negative Amortization Schedule (Payments)
    The monthly payment is insufficient to repay the scheduled amortized loan amount.
    Net Income
    Earnings from wages after required withholding of federal and state income taxes and social security benefits, and other voluntary withholdings.
    Origination Fee
    A fee charged to the borrower on a guaranteed student loan to offset the cost of administering the program. It is also charged on some private loans. It is deducted from the loan proceeds.
    Principal
    The face value of the loan; the amount upon which interest is charged.
    Promissory Note
    A written promise to pay a sum of money to a specified person or holder for a certain time period.
    Secondary Market
    A state or private agency that purchases loans from lenders.
    Servicer
    The entity designated to track and collect a loan on behalf of the holder.
    Simple Interest
    Interest calculated on the original principal only.
    Subsidized Loan
    Interest costs during school years and qualifying deferment periods are paid (subsidized) by federal funds. No interest is charged to the student during qualifying deferments.
    Treasury Bill/ T-Bill
    Short-term U.S. Government debt obligations backed by the full faith of the U.S. Government. T-Bills have a maturity of one year or less, auctioned weekly by the U.S. Treasury. The rate is established at the weekly auction.
    Unsubsidized Loan
    Interest accrues from othe date of disbursement; borrower is responsible for repayment of all interest costs to lender.
    Variable Interest
    Rates of interest that are tied to a certain index (depending on the loan) and change periodically as the index changes.