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Student or parents of undergraduate dependents who sign a promissory note for a student loan are assuming the obligation to repay the loan. Endorsers or co-makers of student loans can be held liable for repaying the loan if the original borrower defaults.
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| Capitalization |
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Capitalization is the process of adding accrued unpaid interest to your original loan balance when you are not making payments (for example, during in-school, grace, deferment, or forbearance periods) on loans that may not qualify for interest benefits. The date that the loan was first disbursed or when the loan enters repayment determines when the lender may capitalize interest. |
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| Deferment |
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Borrowers who are having difficulty making student loan payments may qualify for deferment. Deferment is an entitlement that you are eligible for if you meet specific criteria. Borrowers are not required to make payments during deferment and the deferment period is excluded from the maximum repayment time, which can extend the loan term.
The government pays interest that accrues during deferment on subsidized federal Stafford loans, but borrowers are responsible for interest that accrues on unsubsidized federal Stafford loans during deferment.
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| Federal government |
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Congress is responsible for regulating and authorizing funds for education grants and loan programs, including the Federal Family Education Loan Program (FFELP). Through legislation, the federal government also establishes the federal rate formula, which is used to calculate annual student loan interest rates effective each July 1.
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| Fees |
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Most education loans have origination fees, which the government charges to help pay for the cost of administering federal student loan programs. |
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| Forbearance |
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Forbearance is a period when borrowers may temporarily postpone or make smaller payments. There are forbearances that are entitlements for eligible borrowers. Most forbearances are granted at your lender's or servicer's discretion either verbally or in writing when you apply for forbearance. Forbearance periods are excluded from the maximum repayment period, which can extend the loan term. It's important to remember that borrowers are responsible for the interest that accrues during forbearance, regardless of loan type. |
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| Grace period (Stafford loans) |
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The grace period begins the day after a Stafford borrower ceases to be enrolled at least half time and ends the day before the repayment period must begin. During the grace period a borrower is not required to make payments on a student loan. There is a grace period for federal Stafford loans, but federal PLUS loan borrowers begin repayment immediately after the final disbursement is made. Grace periods on private education loans vary by lender. |
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| Guarantee agencies |
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Guarantors are state or nonprofit private organizations authorized by the U.S. Department of Education to guarantee education loans; reimburse lenders for defaulted loans; and provide program, technical, and administrative support services.
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| Interest rates |
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Education loans usually have a variable interest rate and an interest rate cap, meaning that the rate cannot exceed a certain amount. In the case of federal Stafford and PLUS student loans, interest rates are variable and are calculated and effective each July 1 using a formula regulated by the U.S. government. For loans obtained after 1998, the cap on federal Stafford loans is 8.25% and federal PLUS loans for parents are capped at 9.00%. |
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| Lenders |
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These organizations can be banks, credit unions, savings and loan institutions, and other companies that participate in the Federal Family Education Loan Program. They are eligible to provide funds for federally sponsored student loans, and they make the actual loan. Although many lenders choose to sell your loans to a secondary market, Southwest will keep your loan with the same provider for the life of the loan. Your Southwest loan terms and conditions do not change, and our process provides easier and more convenient tracking of your education loans.
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| School |
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Your school or institution determines your financial aid eligibility, recommends and then certifies loan amounts, as well as monitors your enrollment status.
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| Secondary markets |
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A secondary market is an organization that purchases student loans. Some lenders may sell your loan to a secondary market and, when that happens, the original lender passes all responsibility and ownership of your loans to the secondary market. Although many lenders choose to sell your loans to a secondary market, it is Southwest's philosophy to keep your loan with the same provider for the life of the loan. You'll receive the benefits of having loan terms and conditions that do not change, and our process will give you easier and more convenient tracking of your education loans.
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| Servicers |
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These organizations perform loan originations, due diligence procedures and/or collections, and reporting functions on student loan portfolios on behalf of lenders. Servicers can also administer loans on behalf of lenders and secondary markets. At Southwest, you'll have peace of mind knowing we own and service all education loans that we make.
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