Categories: Education Loan

Understanding education loan terminologies

With the rise in the cost of education every year, the demand for education loan is also on the rise among students who want to pursue higher education at prestigious institutes. It helps students to complete their educational commitments without any hassle. Also, being a long-term process, the repayments are deferred until the course is completed and the students get a job. But before applying for any study loan, students need to understand some of the typical education loan terminologies.

In this article, we have prepared a glossary of 10 commonly used terms that you should be familiar with. Learn what these terms mean with regards to your student loan, and it’ll help you stay educated along the way.

Collateral Free Loan

Collateral free loans, in general, means any loan that is disbursed to a student without a supporting collateral or security to limit the lender’s exposure to risk. Collateral free loans are highly beneficial for students who don’t have collaterals to show against a loan. Some of the major benefits of collateral free loans include an attractive and subsidized rate of interest and flexible repayment tenures up to 5 years.


It is a process of paying back a loan over a given set of months. Re-amortization means that once a borrower reward is applied to the loan, the loan will be recalculated to generate a new monthly payment amount. Amortization means paying off of debt over a period of time in regular installments of interest.

Annual Percentage Rate (APR)

The rate that generally the banks charge the students for the loan, including fees or additional costs. Student loans, in general, vary in terms of interest-rate structure, transaction fees, late penalties and other factors – in that case, the APR provides borrowers with a bottom-line number they can easily compare to rates charged by other lenders.


Students may be required to pay an acceleration — or demand for immediate repayment — on their loan under certain circumstances. The term acceleration clause refers to a contract provision that requires the borrower to immediately pay off a loan under certain conditions. Acceleration clauses can appear in mortgages, student loans, business and personal loans, as well as leases.

Capitalized Interest

Unpaid interest that has been added to the principal balance of the education student loan is known as the capitalized interest. The interest starts accumulating during the grace period will be capitalized when the period ends and added to the principal balance of the loan.

Co-Signer Facility

In certain cases, someone with excellent credit history will be asked by the banks to sign a form agreeing to repay the education loans if the student concerned is not in a situation to pay it back. This person is called as a co-signer for a student loan.


A student loan can be postponed using forbearance, but the interest will most likely be accruing during this time. Using forbearance, you can temporarily stop paying your student loan for a certain period of time. Students need to find out if they qualify for a deferment or forbearance.

Grace Period

Certain banks offer students a period of time to pay back the loan after completion of their studies. This is called grace period. During this period, banks don’t expect payment from students.

Income-Driven Repayment Plan

If a student’s loan is high in comparison to the overall income level, they may qualify for an income-driven repayment plan. Student loan borrowers are eligible for this type of repayment plan based on certain factors such as income, family size, state of residence and type of loan.

Loan Forgiveness

When the borrower fulfills certain obligations to the bank, then the remaining balance of the education loan gets discharged (forgiven). If you’re struggling with debt, student loan forgiveness could save you as well. A number of student loan forgiveness programs are there for people who work in public service, education, health care, and other fields.


To refinance your current student loan means to apply for a new loan (hopefully with a lower interest rate) to pay off the existing debts. In the long run, refinancing can be a money saver as it can save you thousands of rupees, but refinancing a loan may mean losing certain protections as well.


A loan servicer is a person who helps students for tasks related to education loans such as billing, repayment plans, and loan consolidation.

Cost of Attendance (COA)

The estimated cost of educational expenses for a period of enrollment, which usually includes tuition fees, room, board, supplies, transportation, and miscellaneous personal expenses as determined by the school.

Credit Report

It is a report that is submitted by a credit reporting agency and provided to a lender to determine a borrower’s creditworthiness. This particular report includes a list of debts, past accounts etc. The credit report also includes information about bankruptcy etc.

Promissory note

This is your education loan’s contract. If you need answers about your repayment options or rights as a borrower, look in your promissory note.

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Manmath Nayak

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