2012-2013
Compendium
AN OVERVIEW OF LOAN PROCESSING AND TERMINOLOGY
AN OVERVIEW OF LOAN PROCESSING AND TERMINOLOGY
Loans are a major source of funds for students and are often a key aid
in making it possible for students to afford college. However, they
create significant financial obligations for students, and it is impor-
tant that students understand how they work.
At the time a student receives a loan he or she is told the interest
rate for the loan. The interest rate is essentially the "rent" the
student will have to pay while having the loan. The higher the interest
rate, the more the student will have to pay to have the loan.
Guarantee or insurance fees and an origination fee often are added to
the loan amount. These fees are charged to cover the costs of admin-
istering the loan program and guaranteeing or insuring the loan.
Once the student drops below half-time enrollment or graduates, the
student borrower is usually given a time to get settled. During this
grace period (usually six months) the student is notified of the number
of payments he/she will have to make, when payments are to begin, and
the day of the month when payments are due.
At the end of the grace period the student begins repaying the loan.
Monthly payments are usually expected, with each payment made up
of interest and principal (the amount borrowed). If payments are late,
a late charge is assessed against the account. Both good and bad pay-
ment histories are reported to national credit bureaus; it is, there-
fore, important to the student's credit rating that he/she make payments
on time. Most loans have specific periods of time in which to complete
repayment (usually 10 years). The minimum monthly payment is usually
$50; however, a larger amount may be required to retire the loan in the
maximum time allowed for repayment.
If you take out a loan, be sure you understand how much you will be
expected to pay for interest, guarantee and origination fees. Find out
the repayment period and how long a grace period you will have before
you begin making payments. Know what you are getting into!
