Glossary

Moving a loan from one servicer to another, which occurs during portfolio migrations, contract changes, or when a borrower consolidates or refinances.

Interest that has accumulated on the loan but has not yet been paid or capitalized.

A customized allocation method allowing borrowers (or servicers, per lender instruction) to specify a complex or non-standard distribution of payments — for example, targeting the highest-interest loan first, or allocating specified dollar amounts to each loan.

A system-generated or manually created notification flagging a condition requiring attention — for example, a returned payment, a missed auto-pay, a delinquency threshold reached, or a pending benefit request.

Spreading repayment across scheduled payments, each consisting of a principal and interest portion. An amortization schedule is a table showing each payment broken down into its principal and interest components, plus the remaining balance after each payment.

The calculated fixed monthly payment that, if paid consistently over the remaining loan term, will reduce the outstanding balance to zero by the maturity date. Derived from the current principal, interest rate, and number of remaining payment periods.

A billing method in which the borrower is billed in advance — before interest for the upcoming period accrues. A January 1 payment covers January's interest. Less common in student lending; used by some institutional lenders for quarterly-billed campus-based loans.

The annualized cost of borrowing, including interest and certain fees.

A billing method in which the borrower is billed after the interest and principal have already accrued — i.e., the payment covers the period that has just passed. A January 31 payment covers January's interest. This is the standard model for most student loans in the U.S.

A person or entity — other than the borrower or cosigner — who has been granted documented permission by the borrower to discuss the account or take specified actions on it. Authorization must be recorded in the servicing system. Common examples: a parent calling on behalf of a student borrower, a financial aid advisor, or a legal representative.

Short-term specialty loans for law school graduates studying for the bar or medical residents in transition.

In a loan servicing platform, a "Behavior" is a configured rule or automated action the system executes under defined conditions — for example, automatically placing an account into grace period status when enrollment ends, triggering a billing run on a set date, or initiating a capitalization event when deferment ends. Behaviors are part of the Configuration Layer set for each loan program.

A configured automated action in the servicing platform that executes under defined conditions, such as initiating a capitalization event when deferment ends or generating a delinquency notice after a set number of days past due.

The defined interval — typically one calendar month — during which interest accrues, payments are due, and billing statements are generated. Different loan programs may use different billing periods (e.g., monthly, quarterly for some institutional loans).

The individual who signed the promissory note and is primarily responsible for repaying the loan. The borrower is the main account holder and primary contact for billing, communications, and benefit processing.

A discharge available to borrowers who were defrauded or misled by their school.

The addition of unpaid, accrued interest to the loan's principal balance. Once capitalized, interest begins to accrue on the new, higher principal — a compounding effect. Capitalization events include: end of grace period, end of deferment or forbearance, and certain plan changes.

Fees (such as origination or draw fees) that, rather than being paid upfront, are added to the principal balance of the loan and then accrue interest over the life of the loan.

Unpaid accrued interest that has been added to the loan's principal balance. Once capitalized, interest begins to accrue on the new, higher principal — a compounding effect that increases total repayment cost.

Private loans for vocational, technical, and trade school programs.

A subsidiary or affiliated entity of a Parent Lender that holds its own set of loan programs. A Child Lender inherits configuration from its Parent but may have program-specific rules, fee structures, or borrower communication templates that differ.

In a third-party servicing context, the "client" is the lender or institution that owns the loans and has contracted with the servicer to manage them. The client sets the servicing rules, fee structures, and borrower communication requirements.

Discharge of loans if the borrower's school closed while they were enrolled or shortly after withdrawal.

A grouping of loans or borrowers based on a shared characteristic — most commonly the academic year (loan year) in which the loans were first disbursed. Also used in the context of the Cohort Default Rate (CDR), a federal metric measuring the percentage of borrowers from a given loan-year cohort who enter default within a defined window after entering repayment.

The structured set of rules and parameters in a servicing platform that define how a given lender's loans are serviced — including payment allocation method, interest accrual logic, fee structures, billing cycles, deferment rules, and communication templates. Set at onboarding and maintained as program rules change.

A fee charged as a percentage of the amount collected when a delinquent or defaulted loan is placed with a collection agency or attorney. The fee compensates the collector and is typically passed to the borrower, increasing the total amount owed.

A creditworthy individual — typically a parent, guardian, or other trusted adult — who signs the promissory note alongside the primary borrower and agrees to be equally responsible for repayment if the borrower fails to pay. Most common on private student loans. The cosigner's credit is also reported to credit bureaus in connection with the loan.

Servicers report loan status, payment history, and balance to credit bureaus (Equifax, Experian, TransUnion) each month.

A numeric indicator (typically 300–850) of a borrower's creditworthiness, based on payment history, debt levels, and other factors.

A lump-sum or extra payment applied directly to the outstanding principal balance of a loan, reducing the amount owed without changing the scheduled monthly payment. After a curtailment, the loan re-amortizes — meaning the existing payment now pays off the loan faster because less principal remains. Also called "principal curtailment."

Federal and many private loans are cancelled upon the borrower's death.

Failure to make payments for 270 days on federal loans (120 days on some private loans). Has severe consequences including credit damage, loss of federal benefit eligibility, and potential wage garnishment.

A temporary, authorized pause on loan payments. Interest may or may not accrue depending on loan type — subsidized federal loans are protected from interest during deferment; unsubsidized and private loans continue to accrue.

When a payment is late but the loan has not yet defaulted. Begins the day after a missed payment due date.

Combines eligible federal student loans into a single new Direct Consolidation Loan at a weighted average interest rate (rounded up to the nearest 1/8%).

Federal loans for graduate and professional students. Credit check required.

Federal loans for parents of dependent undergraduates. Credit check required. The parent is the borrower, not the student.

For undergraduate students with demonstrated financial need. The government pays interest while the borrower is in school at least half-time, during grace periods, and during deferment.

For undergraduate, graduate, and professional students — no financial need requirement. Interest begins accruing from the date of disbursement regardless of enrollment status.

The borrower's current level of academic enrollment (full-time, half-time, less-than-half-time, not enrolled). Enrollment status directly affects eligibility for in-school deferment and subsidized interest benefits.

Allows up to 25 years of repayment; available to federal borrowers with more than $30,000 in Direct Loans.

The U.S. Department of Education contracts with a small number of servicers to manage Direct Loan portfolios under the Unified Servicing and Data Solution (USDS) contract. As of 2025 there are five contracted federal servicers: Nelnet (largest, ~13.7M borrowers), Aidvantage (~10.4M), MOHELA (~7.2M, the designated PSLF processor), EdFinancial (~7.2M), and CRI (~2.1M). Federal servicers must comply with FSA guidelines and are evaluated quarterly on borrower satisfaction.

Federally backed loans issued by private lenders under the FFEL program, which ended in 2010. Types include Subsidized Stafford, Unsubsidized Stafford, PLUS, and Consolidation loans.

An interest rate that remains constant for the life of the loan.

A temporary pause or reduction in payments granted at the servicer's or lender's discretion. Interest continues to accrue on all loan types during forbearance — including subsidized federal loans.

A fee charged when a payment is received from a foreign bank or processed in a foreign currency, reflecting currency conversion costs or international transaction fees.

A set period after a borrower leaves school — typically 6 months for federal loans — before required payments begin.

For students in law school, medical school, MBA programs, etc. Usually larger balances.

Payments start low and increase every two years, lasting up to 10 years.

An entity or individual that guarantees repayment of a loan if the borrower defaults. In the FFEL program, state guaranty agencies (e.g., PHEAA, ECMC) served as guarantors, backing lender loans with a federal guarantee. In private lending, an individual guarantor (often a parent) may co-sign the note.

Servicers differentiate on: federal vs. private focus; portfolio size; PSLF specialization; technology platform capabilities; borrower satisfaction scores (NPS); compliance and regulatory standing; specialty niches (e.g., Perkins loans, defaulted loans, healthcare professional refinancing); and nonprofit vs. for-profit structure. No single servicer excels at everything — understanding these dimensions helps you understand your organization's strengths and positioning.

IDR plan for borrowers with partial financial hardship. Payment is 10% of discretionary income for new borrowers (after July 1, 2014) or 15% for older borrowers.

Oldest IDR plan. Payment is the lesser of 20% of discretionary income or what the borrower would pay on a 12-year fixed plan. The only IDR plan available to Parent PLUS borrowers (after consolidation).

Federal repayment plans where the monthly payment is based on the borrower's income and family size. Umbrella term covering SAVE, PAYE, IBR, and ICR plans.

Remaining balance forgiven after 20–25 years of qualifying IDR payments (depending on the plan and loan type).

A fee assessed by a school (as institutional lender) to recover costs incurred in collecting a delinquent or defaulted campus-based loan (e.g., Perkins loans). Typically a percentage of the outstanding balance added to what the borrower owes.

The lender's charge for the use of borrowed money, expressed as a rate applied to the outstanding principal.

For non-U.S. citizens studying in the U.S. Typically require a U.S. citizen cosigner.

A fee charged when a payment is not received by the due date (plus any applicable grace period). Amount and grace period are defined in the promissory note and vary by lender.

The entity that owns the loans being serviced — typically a college, university, credit union, bank, fintech, or specialty finance company that has contracted with the servicer to manage its portfolio. The lender bears the credit risk and sets the business rules for its loans.

A grouping of two or more lenders managed together for operational, reporting, or billing purposes within a servicing platform.

Legal fees and court costs associated with pursuing collection of a defaulted loan through the court system. May be assessed to the borrower's account under the terms of the promissory note and applicable law.

In the servicing context, a "loan" is a discrete, trackable record representing a single borrowing event with its own principal balance, interest rate, disbursement date, repayment terms, and transaction history. A single borrower may have multiple loans — each managed as a separate record.

An Alert associated with a specific individual loan record, visible when a servicer opens that account. Examples: a cosigner release request pending review, a disputed transaction flagged for investigation, a special handling note placed by a compliance officer.

A Behavior applied specifically at the individual loan level, overriding a program-level default for that account only — for example, a custom interest accrual start date or a one-time billing cycle adjustment.

The specific category or product under which a loan was originated, defining its rules, interest rate structure, eligible borrower types, and repayment options (e.g., Direct Subsidized, a lender's undergraduate private loan program, a school's institutional loan program).

The agreed-upon timeframe for full repayment of the loan (e.g., 10 years, 20 years).

The date on which the full loan balance must be repaid.

The federal database maintained by the Department of Education that tracks federal student loan and grant data for all borrowers.

A fee charged at the time a loan is originated or when funds are drawn on a line of credit. May be a flat amount or a percentage of the loan. Federal Direct PLUS loans charge a statutory origination fee (~4.2% as of 2024–25). Many private loans charge no origination fee as a competitive differentiator.

A catch-all category for fees not covered by defined fee types — e.g., document processing fees, wire transfer fees, or special handling fees.

A top-level lender entity in a servicing system that may have one or more subsidiary or affiliated lender entities (Child Lenders) beneath it. The Parent Lender typically holds the master servicing agreement and may have overarching configuration settings that apply across all child entities.

Private alternative to Parent PLUS loans; the parent borrows on behalf of their student.

A payment method where an extra payment is applied to future scheduled installments rather than directly reducing principal. The borrower is considered "paid ahead" and may not owe a payment for the next billing cycle or two. Interest continues to accrue on the original balance during pay-ahead periods.

IDR plan capping payments at 10% of discretionary income, for borrowers who are newer borrowers with partial financial hardship.

Any funds received from or on behalf of a borrower and applied to a loan account. A payment is distinct from a transaction — a payment is the receipt of funds; a transaction is the system record of how those funds were applied.

The individual or entity actually making payments on the loan. In most cases the payor is the borrower, but not always — a parent might make payments on a student's loan, or a third party (employer, scholarship fund) might remit funds.

A fee assessed for a specific adverse borrower action, such as a prepayment penalty (for paying off a loan early) or a violation of loan covenants. Federal student loans have no prepayment penalties; penalty fees are more common in private and older loan products.

A method that distributes a payment proportionally across multiple loans in a borrower's account simultaneously, rather than satisfying one loan before moving to the next.

Campus-based loans for high-need students, issued by schools using federal and institutional funds. Program ended in 2017 — no new loans issued, but existing loans remain in repayment.

The original amount borrowed, before interest or fees accrue.

Private student loans are serviced by a different ecosystem of companies — banks that originate and service their own loans, third-party servicers contracted by lenders, and fintech platforms. Key players include Sallie Mae (largest private originator, services its own portfolio), Navient (legacy FFEL and private portfolio), Nelnet/Firstmark (growing private arm), SoFi and Earnest (refinance-focused fintechs), and specialized third-party servicers who manage portfolios on behalf of institutional and private lenders.

The legally binding contract between the borrower and the lender documenting all loan terms — amount borrowed, interest rate, repayment schedule, fee structure, and the borrower's promise to repay. For federal loans, this is the Master Promissory Note (MPN). For private loans, it is a lender-specific loan agreement.

Forgiveness of the remaining federal Direct Loan balance after 120 qualifying payments while working full-time for a qualifying employer (government or nonprofit). MOHELA currently processes all PSLF applications.

A payment arrangement where the borrower authorizes automatic withdrawal from a designated bank account on a scheduled basis — typically monthly on the due date. Often linked to an auto-pay interest rate discount (typically 0.25%).

The full set of conditions governing how a loan must be repaid — repayment start date, term length, payment frequency, payment amount or calculation method, interest rate, and any special conditions (e.g., graduated step-ups, income-based adjustments).

A fee charged when a borrower's payment is returned by their bank due to insufficient funds (NSF) or a closed account. Also called a "returned payment fee" or "dishonored payment fee."

The newest IDR plan, replacing REPAYE, with the lowest payments for many borrowers. Undergraduate loan payments capped at 5% of discretionary income.

The specific payment amount and due date established by the borrower's current repayment plan — the amount the system expects the borrower to pay and when. Changes when the borrower switches plans, when an IDR recertification occurs, or when a graduated repayment step-up is triggered.

Fixed monthly payments for up to 10 years (federal loans). The default plan for federal borrowers.

The default payment allocation method. Payments are applied in a pre-set priority order established by the lender or federal rules: typically (1) fees, (2) accrued interest, (3) principal. Excess funds flow "down the waterfall" to the next loan in sequence once the first is satisfied.

A new private loan replacing one or more existing student loans (federal or private), often to secure a lower rate or different term.

A federal law restricting how lenders and servicers may contact borrowers by phone and text. Servicers must obtain "prior express consent" from borrowers before using automated dialing systems (autodialers), prerecorded voice messages, or text messages — particularly to cell phones. Consent is typically established when the borrower provides their phone number on a credit application, promissory note, or account agreement. Revocation of consent must be honored promptly.

Up to $17,500 in forgiveness for eligible teachers who work 5 consecutive years in a low-income school.

A third-party servicer is a company that manages loans on behalf of a lender without owning them. The lender retains credit risk and sets the program rules; the servicer executes all account management functions. Service models typically include: SaaS platform (lender self-serves using the servicer's technology), lender-branded (servicer operates under the lender's brand), and fully outsourced (servicer operates under its own brand).

An allocation instruction directing that a payment be applied exclusively to one specific loan on the account, rather than distributed across the portfolio.

Loan cancellation for borrowers who are totally and permanently disabled, as documented by the VA, SSA, or a licensed physician.

A discrete record in the servicing system representing a specific financial event — payment receipt, interest accrual, fee assessment, capitalization, disbursement, reversal, adjustment, or write-off. Each transaction is timestamped, categorized by type, and contributes to the loan's full account history.

The process of determining how a received payment is divided among outstanding fees, accrued interest, and principal — governed by the active payment allocation method configured for the loan.

Supplemental borrowing for undergrads when federal aid is insufficient. Often require a cosigner.

An interest rate that can change, typically tied to a financial index (e.g., SOFR).

Core servicer responsibilities include: processing and applying monthly payments; enrolling borrowers in repayment plans; processing deferment and forbearance requests; managing PSLF applications and qualifying payment tracking; annual IDR income recertification; communicating with borrowers via phone, mail, email, and portal; reporting to credit bureaus monthly; sending required disclosures and billing statements; facilitating loan transfers during portfolio migrations; and handling escalations, complaints, and regulatory inquiries.

A student loan servicer is the company responsible for managing a borrower's loan account after funds have been disbursed. The servicer collects payments, processes applications for repayment plans, communicates with borrowers, and reports to credit bureaus. The servicer works on behalf of the lender — it does not own the loans it manages.