Student loan glossary

The section of the federal Bankruptcy Code that makes most student loans nondischargeable unless the borrower proves that repayment would impose an undue hardship on themselves and their dependents.

A borrower's total taxable income minus specific deductions, as reported on a federal tax return. Federal income-driven repayment payments are generally calculated using AGI.

A process by which the federal government can require a borrower's employer to withhold up to 15% of disposable pay to repay a defaulted federal student loan, without a court order.

A separate lawsuit filed within a bankruptcy case, required to seek discharge of student loans. The borrower files the AP against the loan holder and asks the court to find undue hardship.

A federal student loan servicer operated by Maximus that manages Direct Loan accounts on behalf of the U.S. Department of Education, including many accounts previously serviced by Navient.

A federal process for discharging Direct Loans when the school misled the borrower or engaged in misconduct related to the loan or the educational services it promised.

A three-part legal standard many bankruptcy courts use to decide whether repaying student loans would cause undue hardship. It considers current income, likely future circumstances, and good-faith effort to repay.

A form of federal bankruptcy in which the debtor follows a three-to-five-year court-approved repayment plan. Student loan balances remaining after the plan are not automatically discharged and require a separate adversary proceeding.

A form of federal bankruptcy that liquidates nonexempt assets to pay creditors and discharges most remaining unsecured debts. Student loans are not automatically discharged in Chapter 7 and require a separate adversary proceeding.

A federal loan discharge available to borrowers whose school closed while they were enrolled or shortly after they withdrew, before they could complete their program of study.

Fees added to a defaulted federal student loan to cover the cost of collection. They can be a significant percentage of the balance and may be reduced or waived through programs like rehabilitation or Fresh Start.

A person who signs a loan agreement alongside the primary borrower and becomes equally responsible for repayment. Cosigners are common on private student loans when the student has limited credit or income history.

A process offered by some private student loan lenders that allows a cosigner to be removed from a loan after the primary borrower meets specific payment history and credit requirements.

The cancellation of federal student loans when the borrower dies. On a Parent PLUS Loan, the loan is also discharged if the student on whose behalf it was taken dies.

The status of a federal student loan after the borrower has failed to make required payments for 270 days. Default can trigger collection actions such as wage garnishment, tax refund offset, and damage to credit reports.

The office within Federal Student Aid that manages defaulted federal student loans, including collection activity, rehabilitation, and consolidation of defaulted debt.

The status of a loan when a payment is past due but the borrower has not yet defaulted. Federal loans are delinquent from the first day after a missed payment and are typically reported to credit bureaus after 90 days.

A federal student loan made directly by the U.S. Department of Education under the William D. Ford Federal Direct Loan Program. Most federal student loans issued since 2010 are Direct Loans.

A federal loan for graduate students (Grad PLUS) or parents of dependent undergraduates (Parent PLUS). It requires a credit check and typically carries a higher interest rate and origination fee than other Direct Loans.

A federal student loan for undergraduates with demonstrated financial need. The government pays the interest while the borrower is in school at least half-time, during the grace period, and during approved deferment.

A federal student loan available to undergraduate and graduate students regardless of financial need. Interest accrues from the moment the loan is disbursed, including while the borrower is still in school.

For federal income-driven repayment plans, a borrower's adjusted gross income minus a set percentage of the federal poverty guideline for their family size. Monthly IDR payments are calculated as a percentage of this amount.

Educational Credit Management Corporation, a nonprofit guaranty agency that manages defaulted FFELP loans and is frequently the opposing party in student loan bankruptcy litigation.

A federal student loan servicer that manages Direct Loan accounts on behalf of the U.S. Department of Education.

The federal form used to certify qualifying employment for Public Service Loan Forgiveness. Borrowers submit the form to their servicer to have qualifying payments counted toward PSLF.

A federal repayment plan that stretches payments out up to 25 years for borrowers with more than $30,000 in Direct or FFELP loans. Monthly payments are lower than the Standard Plan, but total interest paid is higher.

A student loan issued by a private lender but guaranteed by the federal government under the Federal Family Education Loan Program. No new FFELP loans have been made since 2010, but millions of borrowers still hold them.

The combining of one or more federal student loans into a single new Direct Consolidation Loan. Consolidation can restore defaulted loans to good standing, change the servicer, and open access to certain repayment plans and forgiveness programs.

The federal program that guaranteed student loans made by private lenders through 2010. Loans issued under this program are commonly called FFELP loans and are still held by millions of borrowers.

The office within the U.S. Department of Education that manages federal grants, work-study, and student loans. It runs the FAFSA, the StudentAid.gov website, and oversees the federal loan servicers.

An interest rate that stays the same for the life of a loan. Federal student loans carry fixed rates; some private student loans offer fixed or variable options.

A temporary pause or reduction of payments offered by a private student loan lender, usually during hardship. Interest continues to accrue and is typically capitalized when the forbearance ends.

A time-limited federal opportunity that lets borrowers count past periods of repayment, deferment, or forbearance toward PSLF or IDR forgiveness that would not normally qualify, often used to correct servicer errors and payment-count gaps.

A temporary federal initiative that allowed borrowers with defaulted federal student loans to return to good standing with a simple opt-in, restoring eligibility for aid and income-driven repayment. The enrollment period ended in 2024.

A federal Direct PLUS Loan for graduate or professional students. It can cover up to the full cost of attendance minus other aid received and requires a credit check at the time of application.

A federal repayment plan where monthly payments start lower and increase roughly every two years, typically over a 10-year term. It is designed for borrowers who expect their income to rise over time.

A state or nonprofit agency that administers defaulted FFELP loans and acts on behalf of the federal government in collecting those debts.

The forgiveness of any remaining federal student loan balance after a borrower has completed 20 or 25 years of qualifying payments under an income-driven repayment plan, depending on the specific plan.

A period during which a borrower enrolled at least half-time in school is not required to make loan payments. Interest may or may not accrue during deferment, depending on the loan type.

A federal income-driven repayment plan that caps monthly payments at 10% or 15% of discretionary income, depending on when the loans were taken out. Remaining debt is forgiven after 20 or 25 years of qualifying payments.

The oldest federal income-driven repayment plan, with payments generally set at 20% of discretionary income or a fixed 12-year amount, whichever is lower. It is the only IDR plan available to Parent PLUS borrowers after consolidation.

A category of federal student loan repayment plans that calculate monthly payments based on income and family size rather than loan balance. Any remaining balance can be forgiven after 20–25 years of qualifying payments.

The addition of unpaid interest to the principal balance of a loan. After capitalization, interest begins accruing on the new, larger principal, which increases the total cost of repayment.

A designation for a lender authorized under federal law to issue student loans to borrowers who cannot obtain loans from other sources. The term historically applied to certain guaranty agencies in the FFELP program.

The company that manages a borrower's federal student loan account, processes payments, and handles applications for repayment plans, deferment, forbearance, and forgiveness on behalf of the U.S. Department of Education.

The Missouri Higher Education Loan Authority, a federal student loan servicer that currently handles accounts for borrowers in Public Service Loan Forgiveness and other federal loan portfolios.

A federal tax filing status for married couples in which each spouse files an individual tax return. On most IDR plans, filing separately allows a borrower's payment to be based on their own income rather than household income.

A single promissory note that can cover multiple federal student loans over up to ten years, so a borrower does not have to sign a new note for each disbursement.

The U.S. Department of Education's central database of federal student loans and grants. It holds records of loan balances, disbursements, servicers, and enrollment history for federal aid recipients.

A federal student loan servicer that manages millions of Direct Loan accounts on behalf of the U.S. Department of Education.

The process of verifying that a borrower's employer is a qualifying government or nonprofit organization under Public Service Loan Forgiveness rules, typically done through the PSLF form submitted to the federal servicer.

A federal Direct PLUS Loan taken out by the biological, adoptive, or stepparent of a dependent undergraduate student. The parent is legally responsible for repayment, not the student.

A federal eligibility standard used historically for IBR and PAYE, where a borrower qualifies if their calculated IDR payment is lower than the payment they would owe under a 10-year Standard Repayment Plan.

A federal income-driven repayment plan that caps monthly payments at 10% of discretionary income and forgives remaining debt after 20 years. It is only available to borrowers who took out their first federal loans on or after October 1, 2007.

A low-interest federal student loan for borrowers with exceptional financial need, issued by schools under a now-discontinued program. New Perkins Loans have not been made since 2017, but many existing balances are still in repayment.

Annual income thresholds published by the U.S. Department of Health and Human Services, used in federal student loan programs to calculate discretionary income and determine eligibility for certain repayment benefits.

A student loan issued by a bank, credit union, or other private lender rather than the federal government. Private loans generally lack federal protections like income-driven repayment and broad forgiveness programs.

The legal contract a borrower signs to receive a loan. It sets out the amount borrowed, the interest rate, repayment terms, and the borrower's obligations to the lender.

A federal program that forgives the remaining balance on Direct Loans after 120 qualifying monthly payments made while working full-time for a government or qualifying nonprofit employer.

A monthly loan payment that counts toward federal forgiveness programs like PSLF or IDR forgiveness. Whether a payment qualifies depends on the loan type, the repayment plan, and the borrower's employment at the time of payment.

Taking out a new private loan to pay off one or more existing student loans, usually to lower the interest rate or change the repayment term. Refinancing federal loans into a private loan eliminates federal benefits like IDR and PSLF.

A federal program for borrowers in default that requires nine voluntary, on-time monthly payments over ten months. After rehabilitation, the default is removed from credit reports and federal aid eligibility is restored. It is available once per loan.

A former federal income-driven repayment plan that capped payments at 10% of discretionary income, with forgiveness after 20 or 25 years. REPAYE was replaced by the SAVE Plan in 2023.

The Saving on a Valuable Education Plan, a federal income-driven repayment plan introduced in 2023 to replace REPAYE. Its implementation has been subject to ongoing litigation, and enrolled borrowers have faced court-ordered forbearance periods.

The withholding of a portion of Social Security retirement or disability benefits to repay a defaulted federal student loan. Federal rules cap the offset so that benefits do not fall below a protected minimum amount.

The default federal repayment plan, which spreads loan payments evenly over 10 years — or up to 30 years for consolidation loans. It usually results in the lowest total interest paid among federal plans.

The seizure of a federal tax refund through the Treasury Offset Program to repay a defaulted federal student loan or other delinquent federal debt.

A federal program that can forgive up to $17,500 of Direct or FFELP loans for teachers who complete five consecutive years of full-time teaching at a low-income school or educational service agency.

A now-closed federal program that allowed some borrowers to qualify for PSLF even if they had been on a non-qualifying repayment plan, as long as they otherwise met PSLF requirements.

A federal loan discharge for borrowers who are totally and permanently disabled, as documented by the Department of Veterans Affairs, the Social Security Administration, or a physician's certification.

A federal program that collects past-due debts, including defaulted student loans, by withholding federal payments such as tax refunds, some Social Security benefits, and federal retirement payments.

The federal agency that oversees federal student aid programs, issues regulations for federal student loans, and is the ultimate lender on Direct Loans.

The legal standard a borrower must meet to discharge federal student loans in bankruptcy under 11 U.S.C. § 523(a)(8). Courts apply different tests, most commonly the Brunner Test or the Totality of the Circumstances Test.

An interest rate that can change over the life of a loan, usually based on a market index. Variable rates often start lower than fixed rates but can rise or fall over time.

The federal law that created the William D. Ford Federal Direct Loan Program, under which the U.S. Department of Education lends directly to students and parents rather than guaranteeing loans made by banks.