Paying for College

April 22, 2025 | How to Afford College Without Breaking the Bank: 5 Smart Tips for Students and Families (GreenPath)

December 7, 2023 | ED Forgives $4.8 Billion in Student Loan Debt for Over 80,000 Borrowers (NASFAA)

August 18, 2021 | How free college became a perk for American workers (Vox) 

August 6, 2021 | Education Department Announces 'Final Extension' Of Student Loan Payment Freeze (NPR) 

May 13, 2021 | Interest rates on new federal student loans will rise by nearly 1% as of July. Here’s what borrowers need to know (CNBC) 

April 28, 2021| Income Share Agreements: What Are They, and How Do They Work? (Nerdwallet) 

April 13, 2021 | Are Student Loans Simple or Compound Interest? (Nerdwallet) 

Napkin Finance

• PAYING FOR COLLEGE  

  • SAVINGS

    • • 529 Plan

      • Budget

      • Emergency Fund

      • How to Save More Money

      • Saving for College

  • LOANS

    • • Debt

      • Paying Off Student Loans

      • Student Loans

  • FINANCIAL AID

    • • FAFSA  

Accreditation: The status a school gets when it meets standards set by a national or regional agency that is recognized by the U.S. Department of Education. If your school isn’t accredited, you won’t qualify for federal loans and grants.

Annual percentage rate (APR): The cost of your student loan, including interest and any fees, expressed as a percentage of your yearly expense. Comparing APR instead of interest rates will give you a more accurate picture of the real cost of a loan.

Autopay: A payment option that allows your student loan servicer to automatically debit your monthly payment from your bank account. If you enroll in autopay, you will likely receive an interest rate discount (usually 0.25% or more) and won’t have to worry about accidentally missing a payment.

Borrower defense to repayment: A federal student loan forgiveness program for borrowers whose schools violated certain laws, or defrauded or misled students. Borrowers can also get relief if their school closed before they could complete a degree. New rules for eligibility and forgiveness amounts make successful borrower defenses to repayment claims more difficult, but you should still make a claim if you believe you’ve been defrauded.

Capitalization: A process that adds unpaid interest to the principal balance of your loan, increasing the amount on which you pay interest going forward. Capitalization generally happens after periods of authorized nonpayment, like deferment and the grace period. You can avoid capitalization by paying at least the interest on your loan each month.

Consolidation: A process that combines multiple federal student loans into one federal loan through the Department of Education. Consolidation won’t lower your interest rate, but may be necessary for some federal loan repayment programs.

Co-signer: A person who applies for a loan with the student and is legally liable for the loan if the student can’t pay. Federal loans typically don’t require co-signers. Though private student loans are available without a co-signer, most students don’t have the credit history needed to qualify.

Any late or missed payments for a co-signed loan will affect both the co-signer and the student’s credit history. A co-signer should decide before co-signing a loan whether they are willing to risk harm to their credit record if the student borrower does not repay the loan. Private lenders often hire collection agencies to get a co-signer to repay. A lender or a debt collector may also sue a co-signer.

Co-signer release: Some lenders may offer to release the co-signer from the loan once the primary borrower or student borrower makes a certain number of on-time payments and meets other credit requirements, including a credit check. Your student loan servicer might not tell you when you are eligible to have your co-signer released. If you are interested in releasing your co-signer, you should contact your servicer to find out if you are eligible and what steps your lender requires.

Cost of attendance (COA) is your estimated annual school cost, including tuition and fees, books and supplies, room and board, transportation and personal expenses. Colleges subtract your expected family contribution, or EFC, from their cost of attendance to calculate the maximum amount of need-based aid you can receive. Expected family contribution is the amount the federal government estimates your family can pay for college.

Default: The point at which collections efforts for missed payments may begin. Federal student loans default after 270 days, and private student loans typically default after 120 days of delinquency. Depending on the loan, creditors can sue, garnish wages or seize tax refunds. Loan servicers typically will work with you to get your loan back in good standing.

Missing payments or paying late is bad for your credit history and may make it harder to dig out of debt later. If you are having trouble making payments or if you think you are unable to pay, contact your servicer immediately. Do not wait until your loan is in default. 

Deferment: A period of authorized nonpayment that pauses student loan payments for up to three years. You might seek a deferment for active duty military service and reenrollment in school. Deferment can be a good option if you have a federal subsidized and can’t afford to make payments now, but will be able to soon. If you need a longer-term fix, consider income-driven repayment instead.

The U.S Department of Education (ED) published a list of the reasons qualifying you for a deferment. 

Private student loans may or may not have a deferment option. Deferment practices vary among private lenders.

Delinquent: The status of a student loan after one or more missed payment. Loans enter default after a prolonged period of delinquency. While you will probably face late fees, you can avoid credit damage and default by quickly paying the past-due amount.

Dependent (and independent): Student status that determines if parent information is needed on the FAFSA. If you’re a dependent student, you report your information and your parents’ information. If you’re an independent student, you report your information and your spouse's information (if you have one). Your status is based on your answers to the dependency questionnaire on the FAFSA.

Discharge due to disability or death: Discharge relieves you from having to repay your loan and may be available in certain circumstances.  

For federal student loans, in the event that you become disabled, you may be able to discharge the federal loans through total and permanent disability (TPD) discharge. In the case of total and permanent disability of the borrower, federal student loans can often be discharged. There is a special process to make this disability determination. The U.S. Department of Education has established a special website  with further details.

Federal student loans do not transfer to another person if you die. Your relatives can notify the loan servicer, and the loans will be canceled. 

For private student loans, unlike federal student loans, there are no legal requirements to cancel private student loans for borrowers who die or become disabled. In certain cases, private lenders have special provisions to discharge loans. Check the terms and conditions of your loan, or contact your servicer for more details.

Discretionary income: The amount of money left over from your paycheck after paying taxes and necessary expenses like food and shelter. The Education Department uses discretionary income to determine payments for income-driven repayment plans.

Extended repayment: The Extended Repayment Plan allows you to make lower monthly payments over a longer period of time than the standard ten year repayment period.

Under this plan, your monthly payments are:

• a fixed or graduated amount,

• made for up to 25 years, and

• generally lower than payments made under the Standard and Graduated Repayment Plans.

However, you will end up paying more over time than under the 10-year Standard Repayment Plan.

Federal direct loan: Loans from the federal government to the student. There are two types of direct loans: subsidized and unsubsidized. Generally, federal student loans are more flexible than private loans, so students should seek them first.

Federal student loans

Federal student loans are loans made or guaranteed by the Department of Education. Types of federal student loans include:

• Direct Subsidized and Unsubsidized student loans: These loans, also known as Stafford loans,  are a type of federal student loan that are either subsidized—the government pays the interest while you're in school—or unsubsidized—you pay all the interest from the time you get the loan.

• PLUS loans: There are two types of PLUS loans: the Parent PLUS loan, available to parents of undergraduate students, and the Grad PLUS loan, which is available to students pursuing graduate degrees. All PLUS loans have a fixed interest rate and are not subsidized.

• Perkins loans: A Perkins loan is a type of federal student loan based on financial need. Perkins loans are available to undergraduate students. A Perkins loan is a subsidized loan, meaning that the federal government pays the loan’s interest while you are in school. 

Financial aid: Money to help students pay for college in the form of grants, scholarships, work-study or loans. Financial aid can come from the government, school or private organizations. Students should request federal financial aid by completing the FAFSA.

Financial aid award letter: Each school that accepts you will send a letter that explains how much financial aid you will receive. Financial aid award letters will vary from school to school, making comparisons of aid offers difficult. Aid awards can be appealed.

Fixed interest: An interest rate that does not change during the life of a loan. All federal student loans have fixed interest rates, but private loans can offer fixed or variable interest rates. Fixed interest is the safer option because you don’t have to worry about your rate — and payment — increasing.

Forbearance: Forbearance is a temporary postponement or reduction of your student loan payments for a period of time.  You can ask for forbearance if you are experiencing financial difficulty. 

• Federal student loans: Your federal student loan servicer can grant forbearance for up to 12 months at a time. You have to apply to your loan servicer for forbearance. You must continue to make payments until you receive confirmation that your servicer has accepted your forbearance request. 

• Private student loans: Private student loan forbearance varies. It is more limited than the federal student loan forbearance. Some servicers charge borrowers a flat fee to place loans into forbearance for a period of three months. Contact your private student loan servicer as early as possible if you want to explore this option.

Free Application for Federal Student Aid (FAFSA): The form that the federal government, states, colleges and other organizations use to determine EFC (expected family contribution) and award financial aid. Completing the FAFSA® should be your first step in college finance planning and is necessary to obtain many grants, scholarships, work-study programs and federal student loans.

Even if you are not sure you'll be eligible for any federal aid, you still need the FAFSA®. Schools often award scholarships and other grant aid using FAFSA® information. 

FSA ID: The username and password you (and your parents) use to log into federal student aid services, like the FAFSA. You will also use your FSA ID to sign any promissory notes on federal student loans and signal the completion of your entrance and exit counselings.  

Gap year: A yearlong sabbatical before starting college or graduate school, or before entering the workforce. A gap year can lead to greater academic success, but stopping out — taking a break in the middle of your studies — can have unintended financial effects.

GI Bill®: GI Bill® benefits offer education benefits for service members and veterans. This funding covers tuition and fees, a monthly living allowance, and an annual book stipend. GI Bill® benefits do not need to be repaid.

Grace period: A period of authorized nonpayment that generally lasts six months after you’ve graduated, left school or dropped below half-time enrollment. All federal student loans qualify for a grace period, but private lenders may not offer them. You can make payments during the grace period to start paying down the loan and to avoid interest capitalization.

Graduated repayment: Graduated repayment is a way to repay your student loans that works for those who expect their incomes to rise over time. In graduated repayment, payments start off low and increase every two years. You can contact your loan servicer to get information or to enroll. All federal student loan borrowers are eligible for this program.

Grant: A grant is a type of financial aid that does not have to be repaid.

Income-based repayment: Income-Based Repayment (IBR) is a federal student loan repayment program that adjusts the amount you owe each month based on your income and family size. 

Income-driven repayment plans: Income-Driven Repayment Plans include:

• Revised Pay As You Earn (REPAYE) 

• Pay As You Earn (PAYE) 

• Income-Based Repayment (IBR) 

• Income-Contingent Repayment (ICR)

Income-driven repayment plans cap your monthly payments at a certain percentage of your discretionary income. Your payments may change as your income or family size changes. You must submit info on your income and family size each year to stay enrolled. 

If you repay your loan under an income-driven repayment plan, you may be eligible for loan forgiveness after 20 or 25 years of qualifying payments . If you work in public service, you may be eligible for loan forgiveness in as few as 10 years.

Institutional loan: A loan which is offered directly by a college. With an institutional loan, there are very few standards for features of the loan, such as borrower requirements, interest rates, terms and repayment flexibility. Because of this, it is important to consider all features of an institutional loan before accepting it.

Interest: The cost of borrowing money for school, not including any fees. Most student loans calculate interest using the simple daily interest formula.

Loan consolidation: When you consolidate your student loans, you are actually taking out a new loan. Consolidation allows you to combine several student loans into one larger loan.

National Student Loan Data System (NSLDS): The National Student Loan Data System, or NSLDS, is the U.S. Department of Education's central database for student aid.

Net price calculator: Tool that calculates the college’s total cost — including tuition, room and board and books — minus any grants and scholarships that the student is eligible for. All colleges that offer federal financial aid must have an online net price calculator to help students and parents considering out-of-pocket costs.

Origination fee: The fee a borrower pays to offset a lender’s cost for issuing a student loan. All federal student loans have origination fees, while many private student loans don’t. Origination fees typically have a minimal effect on undergraduates with lower loan amounts, but can be costly for graduates and those with higher loan totals.

Pay As You Earn (PAYE): Pay As You Earn, or PAYE, is a new federal student loan repayment plan that is now available to some borrowers with newer federal loans. It caps your monthly federal student loan payment at 10 percent of your discretionary income. 

Perkins loan: A Perkins loan is a type of federal student loan based on financial need.

PLUS loan: Federal student loans for parents and graduate and professional students. PLUS loans can have higher interest rates and fees than some private student loans, but have less strict credit standards.

Preferred lender list: A list of private lenders a college provides to its students. The list is intended to simplify the process of looking for a private student loan by giving students a list of lenders who have met a set of criteria established by the college. A preferred lender list can be a good place to start looking for a loan, but students can also choose lenders who aren't on that list.

Private student loan: Education funding from banks, credit unions and online lenders instead of the federal government. Private loans are best used to fill funding gaps after maxing out federal loans.

Public Service Loan Forgiveness: Public Service Loan Forgiveness is a program designed to help people manage federal student loan debt while pursuing a career in public service.  Public Service Loan Forgiveness (PSLF) is available to many employees working in public service including all levels of government, states and municipalities, school districts, public hospitals, non-profit organizations, and more.

Refinance: The process of swapping out your current student loans for a new private loan with more favorable terms, like a lower interest rate. Refinancing can help save you money on your loan and can be right for people with stable finances.

Rehabilitation: A program that gets federal student loans out of default. Rehabilitation removes the default from your credit report and eliminates additional collection costs, but you can rehabilitate a defaulted loan only once.

Student Aid Index: A number used by your school to calculate the amount of federal student aid you are eligible to receive. It is based on the financial information provided in your Free Application for Federal student Aid (FAFSA). This is not the amount of money your family will have to pay for college, nor is it the amount of federal student aid you will receive.

Servicemembers Civil Relief Act (SCRA): The Servicemembers Civil Relief Act (SCRA) is a federal law that provides protections for military members as they enter active duty.

If you are currently serving on active duty, you are eligible to have your interest rate lowered to 6% on loans, including all student loans, taken out prior to your active duty military service. This benefit applies to both your federal and private student loans and is available for all active duty servicemembers, regardless of where you serve.

Simple interest: A method of calculating interest charges that is based on the principal balance only. Loans that use the simple daily interest formula are cheaper than loans that use a compounding formula, because they don’t charge interest on interest.

Stafford loan: Stafford loans are a type of federal student loan that are either subsidized – the government pays the interest while you're in school – or unsubsidized – you pay all the interest. 

Standard repayment: Unless you arrange for a different repayment schedule with your loan servicer, the standard repayment schedule is 120 months (10 years). Payments are a fixed amount over the life of the loan.

Stopout: A break from college during an academic program. A stopout differs from a gap year, which typically is taken between academic studies, such as between high school and college. Stopping out breaks up the momentum of your degree program and could cause you to have to make payments on your student loans. This term can also refer to a person who takes this type of break.

Student aid report (SAR): Summary of your FAFSA application that includes your Expected Family Contribution (EFC) and four-digit data release number. If the EFC on your student aid report doesn’t match your current financial situation, talk to the financial aid office at the school you plan to attend.

A student loan is money you borrow from the federal government or a private lender to help pay for college costs, like tuition, supplies, books and living expenses. Federal student loans typically have lower interest rates and more flexible repayment options than private loans. Borrowers should exhaust student loans from the federal government before applying with private lenders.

Student loan servicer: The private company that manages your federal student loan payments until they are repaid. Loan servicers also track loans while the borrowers are in school, maintain loan records, process payments, accept applications and process changes in repayment plans, deferments, forbearances, or other activities to prevent default. Student loan servicers might not always offer the best repayment options, so it’s important to ask questions and advocate for yourself.

Subsidized loan: A federal student loan that doesn’t accrue interest while you’re in college or during other periods of authorized non-repayment, such as a grace period. Subsidized loans don’t require credit history or a co-signer. They are a part of financial aid and only undergraduate students with demonstrated financial need are eligible. Use these loans first if you can.

Total loan balance: It is important to keep track of how much you are borrowing to pay for college. 

To find out the balance of your federal student loans, you should visit the National Student Loan Data System (NSLDS) at www.nslds.ed.gov . NSLDS is the U.S. Department of Education's central database for student aid and provides a centralized, integrated view of your federal student loans and grants so you can access and inquire about them.

To find out the total balance of all your private student loans, you’ll need to contact each of your private student loan servicers to determine your total loan balance or check your credit report.Unlike federal student loans, there is not a single website that contains information about all of your private student loans. If you do not know about private student loans you might have, request a free credit report at  annualcreditreport.com . Private student lenders may report your loans to credit reporting agencies even while you’re still in school or in deferment.

Tuition repayment plan: Tuition payment plans, also called tuition installment plans, are short-term (12 months or less) payment plans that split your college bills into equal monthly payments. 

Unsubsidized loan: For unsubsidized loans, a borrower is responsible for the interest that builds up on the loan while they are in school. Undergraduate, graduate and professional students are eligible for unsubsidized loans, which don’t require credit history or a co-signer. Because interest costs on unsubsidized loans are higher, eligible students should take out subsidized loans first.

Variable interest: Variable interest rates can change monthly or quarterly depending on the loan contract and come with rates caps as high as 25%. Variable interest loans are riskier than fixed interest loans, but can save you money if the timing is right.

Weighted average interest rate: The interest rate that represents the cost of all your loans combined. The weighted average interest rate is the weighted average of your current loans rounded up to the nearest one-eighth of one percent. It’s used to determine your new interest rate if you decide to consolidate your federal student loans.

Work study: Federal Work-Study helps provide part-time jobs for undergraduate and graduate students with financial need, allowing them to earn money to help pay education expenses.

Source: Nerdwallet & Consumer Finance

• Studentaid.gov (Where you fill out the FAFSA)

  • Understanding Student Loan Repayment (Studentaid.gov)

  • Understanding Scholarships (Studentaid.gov)

  • You know you have to fill out the Free Application for Federal Student Aid (FAFSA®) form, but maybe you’re not sure what to do. (Studentaid.gov)

  • Did you know that the Internal Revenue Service (IRS) provides tax benefits for education? (Studentaid.gov)

• Search for tools and resources to help you or your students learn about financial aid for college. (Financial Aid Toolkit

• Financial Aid Guide for Graduate Students (Best College)

• Financial Aid Guide for Undocumented Students (Best Colleges)