Student loan terminology

By Scott Glasgow - This lesson will explain key terms you should know.

Loan principal

The amount of money you borrow.

Interest rate

Typically reported as a percentage. Determines the amount of money you owe the lender on top of the principal. The interest is how the lender makes money and rates vary between choices.


Loans can also charge fees on top of interest. This is either a fixed dollar amount or a percdntage of the principal.


APR (aka Annual Percentage Rate) is antoher way to describe interest rate. The APR is the amount of the balance of your loan that grows each year.

Interest capitalization

This occurs when you make payments smaller than the interest on your loan. The interest capitalizes and become part of the principal. It also accrues interest and must be repaid.


The expected duration of repayment on a loan. If you make the standard payments you will owe $0 at the end of the loan term.

Repayment scedule

The size and timing of payments that you make on your loan.


If you fail to make sceduled payments over a period of time, you enter default. There are penaltities for defaulting an you should avoid this at all cost.


You'll usually have an option to "defer" your student loan payments. This will give you time to find a job so you can repay the loan. Many student loans include a grace period for after graduation.

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