All ASDA members receive a handbook when they join. Predoctoral members receive “Getting Through Dental School” and predental members receive “Getting Into Dental School.” Both books contain the glossary of terms below, as well as other key financial resources. Join now to receive this valuable resource.

Accrued Interest 

The amount of money that has accumulated on the principal of your loan.

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Annual Percentage Rate 

The yearly cost of the loan to the borrower. It reflects all finance charges, including interest (if applicable), guarantee fee (if applicable) and origination fee (if applicable).

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Borrower 

The person who obtains or cosigns for the loan and is thus responsible to repay it.

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Capitalization of Interest
(sometimes called “compounded” interest) 

Accrued and unpaid interest is added to the principal balance to create a new and interest higher balance. Example: A $5,000 loan at 10 percent interest capitalized annually will accrue $500 in interest in the first year the principal is outstanding.

At the end of the first year, the $500 dollars in interest will be added to the $5,000 principal balance. During the second year—assuming no payments are made on either principal or interest—interest will accrue on the new balance of $5,500. As a result, at the end of the second year, the amount of interest accrued will be $550, which will then be added to the $5,500 for a new balance of $6,050 on which interest will accrue during the third year. And so on.

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Combined Billing 

Lenders (or servicers) generally offer a combined bill for all of a borrower’s loans serviced by that lender/servicer so that the borrower only needs to make one payment per month for all of the loans.

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Compounded Interest 

See “capitalization of interest.”

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Default 

Occurs when a borrower fails to meet his or her obligations on repaying a loan according to the terms of the loan. Default has serious negative consequences for the borrower, which may include impacting credit rating, garnishment of tax refunds and wages, and responsibility for paying costs incurred to collect on the defaulted loan.

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Deferment 

A period of time when the borrower is not required to make payments on a loan due to meeting certain conditions. Deferment must be requested; it is not automatic. Check your promissory note and exit interview materials. Many loan servicers and school officials are not aware of the special deferment privileges available only to dental residents.

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Delinquent 

A borrower is late in making payments on a loan but is not yet in default. This usually occurs after 30 days when a borrower’s past due monthly payment remains outstanding during the next month’s bill cycle.

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Discharge 

The release of a borrower from his/her loan obligation. The loan need not be repaid, usually because of the borrower’s death or permanent and total disability. Documentation is required. Example: A borrower had a devastating accident that permanently and totally disabled her so she cannot work. Her federal loans can be discharged. Note: Not all loans have discharge provisions. For these, it is wise to acquire life insurance to cover any required payments, should the unexpected occur.

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Disclosure Statement 

A document prepared by the lender that identifies the cost of the loan to the borrower as a result of the interest charged, accruing and capitalization of interest, and other finance charges.

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Equal Installments 

Repaying the loan in the same increments over time such as $50 every month or $90 every quarter.

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Fixed Interest Rate 

The interest rate remains the same over the life of the loan.

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Forbearance 

A formal arrangement between the borrower and the lender, holder or servicer that prevents delinquency or default by allowing the borrower to suspend or reduce payments for a period of time because the borrower is experiencing difficulty in meeting monthly payment obligations. Because you pay less or nothing during periods of forbearance, it can lengthen the time it takes to repay the loan. This means interest accrues on the loan for a longer period, thereby reducing payments in the short-term but increasing the total cost of the loan. It may also mean capitalization of accrued and unpaid interest during this time, thus increasing both the balance owed on the loan and the monthly payments required after the forbearance period has ended. Forbearance isn’t automatic; you must request it from your loan servicer and document it.

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Graduated Repayment 

Repayment installations are lower in the first years of repayment and increase over time. The assumption is that borrowers tend to have lower incomes after graduation, but higher incomes as they continue working.

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Guarantor 

The insurer of a loan against a borrower’s default, disability, death or bankruptcy.

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Holder 

Owner of the promissory note. The holder can be the lender.

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Income-Based Repayment (IBR) 

Federal repayment option which limits a borrower’s monthly payment to 15 percent of their discretionary income. After 25 years of making qualified payments, any remaining balance on the applicable loans will be eligible for forgiveness. Additionally, if the borrower’s monthly payment does not cover the total interest accrued on their Subsidized Stafford loans, the government will pay the remaining interest for the first three years after IBR begins.

For all new borrowers taking out loans on or after July 1, 2014, HCERA reduces monthly IBR payments from 15 percent to 10 percent of a borrower’s discretionary income. The loan forgiveness period is also reduced from 25 years to 20 years.

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Income-Contingent Repayment (ICR) 

Repayment option available to only Direct Loan borrowers. Monthly payments are adjusted annually based on a borrower’s income, family size and total amount borrowed. ICR is based on a 25-year repayment schedule, with the monthly payment amount capped at 20 percent of a borrower’s discretionary income.

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Income-Sensitive Repayment 

Repayment option available to Federal Family Education Loan (FFEL) in which a borrower’s monthly payment is calibrated to their income. With a 10-year repayment schedule, installments can fluctuate annually as the borrower’s income rises and falls.

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Interest Rate 

The cost of borrowing money represented by a percentage of the principal.

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Lender 

The individual or organization that provides a loan to a borrower.

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LIBOR 

LIBOR stands for London Interbank Offered Rate, the average interest rates paid on deposits of U.S. dollars in the London market. LIBOR is the standard financial index used in the U.S. capital markets. The current rate is listed daily in the Wall Street Journal and at www.bloomberg.com (under “interest rates”).

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Loan Consolidation 

Usually refers to a federal program that permits borrowers to combine their federal educational loans into one loan to benefit from having one interest rate and being eligible for certain repayment programs. Loans that are eligible to be considered for consolidation are: subsidized and unsubsidized Direct and FFEL Stafford Loans, Direct and FFEL PLUS Loans, Supplemental Loans for Students (SLS), Federal Perkins Loans, Federal Nursing Loans, Health Education Assistance Loans, and PLUS loans. Note: The Direct Loan Program is the only option for Federal Loan Consolidation. Additionally, Private loans (e.g., Alternative Loans) cannot be consolidated in federally sponsored loan consolidation programs.

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Loan Repayment  

Generally, loan repayment begins after graduation and after a grace period that can vary in length from six to 12 months. Some student loans offer a variety of repayment options, while others offer only level monthly payments. Options may include interest-only payments during initial repayment period, Income-based Repayment and Income-contingent Repayment. Repayment options that offer reduced payments in the initial years contribute to an increase in the overall cost of the loan. Consult your promissory notes and exit interview materials to determine the repayment options and periods for the loans you hold.

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Loan Servicer 

An organization that acts on behalf of the lender and/or holder and conducts certain activities, such as billing students for repayment, processing deferment forms, requests for forbearance, sending out notices to borrowers about the status of their loans and collecting delinquent accounts. Some holders act as their own servicers rather than hiring an outside loan servicer.

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Principal 

The amount of the loan borrowed. Example: When a borrower takes out a loan of $10,000, the $10,000 is called the principal.

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Promissory Note 

The legally binding contract between the borrower and the lender that details the borrower’s responsibility to repay the loan and stipulates the loan’s terms and conditions, such as interest rate, number of years to repay and deferment options.

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Refinancing Options 

Acquiring one larger loan to repay several smaller loans. Examples:

• Consolidation – Program that permits borrowers to combine certain federal student loans into one loan with one interest rate and several repayment options, such as equal installments or graduated repayments.
• Private refinancing – Loan obtained through private means (e.g., home equity loan or school-sponsored program) that permits the borrower to repay two or more of his or her educational loans. Terms will vary.

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Repayment Period 

The amount of time permitted to repay the loan after any grace period or deferment.

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Repayment Options 

The amount and timing of repayment. Examples:

• Equal installments – Loan payments of $50/month or $90/quarter. 
• Graduated repayments – Smaller loan payments in the first years of repayment with larger payments over time, under the assumption that the borrower’s income increases over time.
• Income-based repayments – Repayments that change with borrower’s income, so that repayment installments fluctuate as income rises and falls.

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Secondary Market 

An organization that buys loans from lenders and other holders. By definition, a secondary market is a holder.

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Simple Interest 

The interest is based only on the amount borrowed. Example: A $5,000 loan at 10 percent simple interest will only accrue $500 in interest for each year that the total principal is outstanding.

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Terms and Conditions 

Loans have characteristics that define what the borrower and lender are each entitled to and what actions they can take or are required to take. Examples of terms and conditions include interest rate, length of repayment, repayment options (e.g., equal installments, graduated repayments) deferment options, charges for late payment and consequences to the borrower in cases of delinquency or default.

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Treasury Bill Rate (T-Bill Rate) 

The rate paid by the government on its short-term borrowing. The rate usually matures in 18 months or less. Treasury Bill rates are indexes used by variable-rate loan programs.

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Variable Interest Rate 

The interest rate fluctuates at specific intervals over the life of the loan; fluctuations are usually tied to certain monetary measures, such as the prime rate of interest or average interest rates on Treasury Bills.