When it comes to helping ensure your students are set up for financial success with their student loans, understanding the various aspects of the process is key. Here at Climb, we’re dedicated to making sure everyone involved really knows what a loan entails, so we’ve gathered some common student loan terminology you and your students definitely want to be familiar with!*
Student loan terms to know before they apply:
Someone (relative, spouse, friend, or anyone!) who signs onto a loan with the main borrower and agrees to make payments if the borrower becomes unable to do so. In many cases, having a co-borrower could increase an applicant’s chance at approval or even a lower interest rate.
The process by which an applicant is either approved or denied for a loan. The factors that are considered vary from lender to lender, but many look at credit score, payment history, and debt-to-income ratio.
The applicant’s monthly debt payments compared to their monthly income.
On the lender’s side, the process of a loan application. This includes the application’s submission, loan underwriting, processing any documentation they’ve submitted, and sending the loan funds.
The amount that the student currently owes out of the original amount they borrowed. For example, if they take out a $10,000 loan, their principal at the beginning will be $10,000. Then, the principal will be reduced as they pay back the original amount borrowed and the additional interest on the loan!
The amount the student is charged to borrow money. This is usually expressed as a percentage of the principal amount they pay over the course of a year, typically in monthly installments.
Annual percentage rate (APR)
The amount they student is charged annually to borrow money. Like interest rate, this is expressed as a percentage, but unlike interest rate, it takes any additional loan fees into account.
Student loan terms to know as they pay back:
Short for Automated Clearing House, setting up ACH on a loan allows payments to be automatically withdrawn from the student’s bank account each month. Connecting their account for ACH auto-payments not only makes it easier to make payments on time, but often lenders will offer an interest rate reduction as long as ACH is connected!
When a lender sends the funds for a loan — with Climb loans, funds are sent directly to your school, so neither you nor your students have to worry about them getting it to you.
A company used by the lender to handle payments and billing after a loan is funded.
A temporary reduction or pause in student loan payments. With private student lenders, availability and terms vary, and interest tends to accrue during the deferment/forbearance period. Some loan options include a built-in deferral period at the beginning of the loan term, but a student can also request one if they find they’re currently unable to make payments — in this case, they may also need to provide documentation showing their need of assistance.
*These are how these terms are typically used. Your students should check the specific definitions in any loan documents before signing them and consult an attorney or other advisor if they aren’t sure what any specific terms means.