Do you know the difference between your student loan lender and your student loan servicer? These terms sound similar, but they refer to two totally separate entities that impact how you repay your student loans.
If you have student loans, you already know that this stuff gets complicated, fast. Not knowing the definitions of some common terms and what some of them mean doesn't help.
Knowledge is power! Understanding these words and what they mean empowers you to make the best decisions possible about what to do with your debt. With that in mind, here are some common terms to know.
Promissory Note: This is the legal document that spells out the binding terms of your loan that you agreed to when you signed the paperwork to borrow the money.
Grace Period: The period of time between when you take out your loans, and when you need to start paying them back.
Forgiveness: You get student loan forgiveness when you are no longer required to repay your balance. This can also happen if you receive a cancellation or discharge.
Income-Based Repayment: This term refers to a number of programs created by the federal government to help borrowers repay their loans. Also known as IBR, these plans can help change your monthly payment amount to make it more manageable.
Delinquent: Being delinquent on your loans means you've missed a monthly payment. Even if your payment is one day late, you're considered delinquent until you make the required payments.
Default: Your loans enter default 270 days after you become delinquent. While delinquency is bad and can damage your credit, default is far worse. When you're in default, your student loan servicer can garnish your wages or tax returns. They can even take legal action against you.
Loan Lender: You originate your student loans with a lender. This is the financial institution that lends you the money, sets your interest rate, and creates the terms of your loan.
Loan Servicer: Your loan servicer is who manages the repayment of your loan. Most of the time, the original lender will assign a student loan servicer to work with borrowers instead of working with you directly. If your student loan servicer is different than your original loan lender, you will get a letter in the mail notifying you
Consolidation: This allows you to take multiple student loans and roll them into a single loan. You originate a new loan, use that money to repay all your individual student loans, and then focus on repaying the single, new consolidation loan. When talking about student loans, consolidation usually refers to a plan for federal student loans.
Refinance: This is a similar process to consolidation, but you usually work with a private lender to refinance your student loans.
Unsure about another student loan term that's not listed here? Both StudentLoans.gov and StudentAid.ed.gov provide glossaries for your reference. Use these resources and look up the definition of a word when you don't understand it yourself.
Remember, knowing these terms will help you make the best decisions about what to do with your loans. Don't be afraid to look something up!