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Financial Aid Glossary

By Kay Peterson, Ph. D.

January 04, 2013

Financial Need: The difference between the student’s educational costs and the Expected Family Contribution.

Fixed Interest Loans: Interest rate stays the same for the life of the loan.

Forbearance: The approved temporary suspension of loan payments due to a financial hardship (interest continues to accrue).

Free Application for Federal Student Aid (FAFSA): The application students must first complete to apply for virtually all forms of financial aid. Available by calling 1-800-4-FED-AID, and on the Web by following the links at

Gift Aid: Grants and scholarships that do not need to be repaid.

Grace Perio: The period after a student either graduates or leaves school and before loan payments must begin (typically six to nine months).

Grant: Financial aid that does not have to be paid back – typically based on financial need.

Guarantee Fee: A percentage of the loan that is paid to the guarantor to insure the loan against default. The fee is usually one percent of the loan amount.

Guarantor: A state agency or private, nonprofit organization that administers a student loan insurance program.

Home Equity: The current market value of the home minus the mortgage’s unpaid principal (based on market value).

Income Contingent Repayment: The size of the monthly payments depends on the income earned by the borrower. As the borrower’s income increases, so do payments.

Institutional Methodology: A formula some schools devise to determine financial need for allocating their own institutional financial aid funds.

Lender: A bank, credit union or other financial institution that provides funds to the student or parent for an educational loan.

Merit-based Aid: Financial aid based on academic, artistic, athletic or other merit-oriented criteria (not financial need).

Need Analysis: The process used by a college to evaluate an applicant’s financial resources and determine how much the student or family can pay toward the cost of the education.

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