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Capitalization. The addition of accrued interest to the principal balance of the loan.

Default. A borrower’s failure to fulfill the agreement that the borrower signed when taking out a federal education loan. For example, you would be considered in default if you failed to make your monthly loan payment when due for a period of at least 270 days.

Deferment. A period during repayment in which the borrower is not required to make payments of loan principal.


FAFSA. The Free Application for Federal Student Aid is the form that the student (and parents of dependent students) must complete to apply for federal financial assistance, including federal student loans.

Forbearance. The period during which a borrower is permitted to temporarily cease making payments or reduce the amount of the payments. The borrower is responsible for the interest that accrues on the loan during the forbearance period. In many cases, forbearance is granted at the lender’s discretion; in other instances, borrowers are entitled to forbearance.


Holder. The current owner of a federal student loan.

Independent Student. A student who meets one or more of the following criteria: is at least 24 years old by Dec. 31 of the financial-aid award year; is an orphan, in foster care or ward of the court; is an emancipated minor or in a legal guardianship; is an unaccompanied youth who is homeless; is serving on active duty in the Armed Forces for purposes other than for training; is a veteran of the U.S. Armed Forces; is a graduate or professional student; is a married person; has legal dependents other than a spouse; is a student for whom the school’s financial-aid administrator determines and documents the student’s independent-student status based on the administrator’s professional judgment of the student’s unusual circumstances.

Interest. The charge made to a borrower for use of a lender’s money.


Secondary Market. An organization that purchases education loans from lenders in order to replenish the supply of funds for new education loans. The secondary market obtains funds from investors and uses those funds to purchase existing education loans from lenders. The lenders then use the proceeds of those sales to make new education loans.

Servicer. An organization that contracts with a lender or other loan-service provider to administer any aspect of the provider’s participation in the loan program.