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Financial Terms Glossary

Finance & Financial aid terms can be an alphabet soup of acronyms like FAFSA, SAR, SAP and EFC and technical terminology. It is almost like speaking a foreign language. This glossary defines the terms and acronyms that are most frequently used in basic finance or student financial aid.

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Cafeteria Plan

A cafeteria plan is a type of employee benefit under section 125 of the Internal Revenue Code. These benefits are excluded from income, except when the plan discriminates in favor of highly compensated employees or more than a quarter of the benefits accrue to key employees. Contributions to a cafeteria plan and payments from a cafeteria plan are not reported as untaxed income on the FAFSA.

CAI

Contribution from Available Income

Calendar Year

A calendar year is a 12-month period that runs from January 1 to December 31.

Campus-Based Aid

Campus-based aid includes the Federal Perkins Loan, Federal Work-Study and Federal Supplemental Educational Opportunity Grant programs.

Cancellation

Cancellation of a debt eliminates the obligation to repay the debt. There are several types of loan cancellation, including loan forgiveness (cancellation in exchange for particular activities by the borrower) and discharge (cancellation based on circumstances that affect the borrower’s ability to repay the debt).

Candidates Reply Date Agreement

Colleges and universities that subscribe to the Candidates Reply Date Agreement (CRDA) have agreed to not ask applicants to respond to an offer of admission and/or financial aid before the May 1 National Candidates Reply Date.

Capital Gains

Capital gains refer to the profit from the sale of an investment or other asset.

Capital Losses

Capital losses refer to the loss from the sale of an investment or other asset.

Capitalization

Capitalization of interest occurs when unpaid interest is added to the principal balance of the loan. After interest is capitalized, interest may be charged on interest, not just principal, increasing the cost of the loan.

Case-by-Case

A case-by-case professional judgment review considers each student’s situation separately from all others. College financial aid administrators may not have broad policies or practices that treat all students the same, regardless of the details of the student’s circumstances.

Cash

Money in the form of paper currency or coins.

Cash Back

A type of credit card benefit that returns a small percentage of cash back to your account from the money you spend using the card; also called cashback.

Cash Support

Cash support includes money and gifts, plus expenses paid by others on the student’s behalf, such as food, clothing, housing, car payments or expenses, medical and dental care and college costs.

Cashier's Check

A form of check bought for a specific amount and paid to a person or firm named on the check. People pay a fee for a cashier's check. A cashier's check cannot bounce because full payment is needed prior to a cashier's check being issued.

CCRAA

College Cost Reduction and Access Act of 2007

CDR

Cohort Default Rate

Central Processing System

The Central Processing System is an automated system that processes applications for federal student aid including FAFSA on the Web and print/PDF versions of the FAFSA.

Certificate

A certificate is an education credential awarded for completion of a one-year program.

Certificate of Deposit (CD)

A type of savings product that maintains a specific interest rate for a set period of time. Money taken out before the maturity date may also require paying an early withdrawal penalty.

Certification

Certification (or loan certification) occurs when a school confirms a borrower’s eligibility for a particular loan amount.

Certified Financial Planner (CFP)

A trade-industry designation for advisors and other professionals in the financial field who are held to a strict code of ethics and professional standards.

CFR

Code of Federal Regulations

Character of Service

The character of service on a veteran’s discharge papers determines eligibility for veteran’s benefits and whether the veteran is considered an independent student on the FAFSA. There are six entries for character of service on a veteran’s DD-214: honorable, under honorable conditions (general), under other than honorable conditions, bad conduct, dishonorable, and uncharacterized. A veteran with a character of service of “dishonorable” is not considered a veteran on the FAFSA.

Charge-Off

A charge-off or write-off of a debt reduces the value of the debt (usually to zero) because the debt has become uncollectable.

Charge-Off Rate

A loan portfolio’s charge-off rate is the percentage of the portfolio’s outstanding loan balances that were charged-off during the year.

Check

A check is a negotiable order of withdrawal that instructs a financial institution to pay a particular amount of money from a specific bank or brokerage account.

Checking Account

A financial account into which people deposit money and from which they withdraw money by writing checks or using debit or ATM cards.

Claim

A request made by a policyholder for their insurance company to pay for damages or loss.

Class Rank

Class rank is a relative measure of academic performance. It compares the student’s performance against the performance of all other students in the class. It may be expressed as a numeric rank (e.g., the class valedictorian had a class rank of one) or as a percentile (e.g., the student ranked in the 95^th percentile).

CLEP

College-Level Examination Program

Clergy

A member of the clergy is an official of a religious group or order. Examples of clergy include priests, bishops, pastors, ministers, rabbis, imams and ayatollahs.

COA

Cost of Attendance

Co-Borrower

A co-borrower is a joint borrower of a loan, equally obligated to repay the debt.

COD

Common Origination and Disbursement System

Cohabit

A couple is said to cohabit when they live together.

Cohort

A cohort is a group of students, such as a group of student borrowers who entered repayment on their loans at the same time or a group of students who enrolled in college for the first time in a particular academic year.

Cohort Default Rate

The cohort default rate is the percentage of borrowers who entered repayment one year that subsequently defaulted by a following year. For example, the 2-year cohort default rate is the percentage of borrowers entering repayment during one federal fiscal year who default by the end of the following federal fiscal year.

Collateral

Collateral is property pledged as security for a loan. If the borrower defaults on the loan, the lender may seize and sell the borrower’s property to repay the debt. For example, a house may be pledged as security on a mortgage and an automobile may be pledged as security on a car loan.

Collection Agency

A collection agency seeks to collect payments on a debt that is delinquent or in default on behalf of the lender. Collection agencies may be paid a flat fee for each debt collected or a percentage of the debt that is recovered.

Collection Costs

Collection costs are the costs that are incurred in collecting a defaulted loan. Collection costs may include collection agency commissions, attorney fees, court costs, postage, telephone calls, cost of skip tracing, and the cost of reporting the debt to credit bureaus. Collection costs are usually charged to the defaulted borrower.

College Board

The College Board is an association of colleges and universities. The College Board prepares and administers standardized tests for college admission and college credit, such as the PSAT/NMSQT, SAT, SAT Subject Tests, AP Tests and CLEP Tests. The College Board is also responsible for the CSS/Financial Aid PROFILE form, which is used by about 250 mostly private colleges and more than 100 private scholarship programs to determine student eligibility for the college’s or scholarship provider’s own financial aid funds.

College Level Examination Program

The College Level Examination Program (CLEP) is a group of standardized tests administered by the College Board for the purpose of granting college-level academic credit to students who demonstrate proficiency in particular subject areas.

College Preparatory Subjects

College preparatory subjects or college prep classes are a set of secondary school subjects that a student must have completed to be considered for admission to a college.

College Work Study

College work-study, usually called Federal Work-Study, is a need-based, part-time student employment program.

Co-maker

A co-maker is a co-signer on a loan.

Combat Pay

Combat pay is a form of hazard pay for soldiers who are deployed to a combat zone or engaged in active combat.

Commercial Paper Rate

The Commercial Paper Rate (CP) is an average of the interest rates that corporations pay to borrow money on a short-term basis. Commercial Paper is a form of unsecured debt.

Common Application

The Common Application is a standard college admissions application form accepted by more than 400 colleges that are members of the Common Application Association.

Common Stock

The category of stock held by the majority shareholders, which gives them an ownership stake in the company and, in most cases, voting rights.

Common-Law Marriage

A common-law marriage is a marriage established by mutual agreement and cohabitation, as opposed to a ceremony performed by an authorized person in front of witnesses.

Community Development Financial Institution (CDFI)

A mission-driven financial institution or nonprofit organization that has been certified by the US Department of Treasury to serve its local community.

Community Property

Community property is property owned jointly by husband and wife.

Commuter Student

A commuter student does not live on campus, but instead commutes to and from campus every day. For example, all of the students who study at a non-residential college, such as most community colleges, are commuter students.

Completion

Completion of a degree or certificate program occurs when the student receives the degree or certificate, typically during a graduation ceremony.

Compound Interest

Compound interest is the charging of interest on interest. This often occurs when interest is added to the principal balance of a loan or capitalized. Compound interest is in contrast with simple interest, where the interest is not added to the principal balance of the loan.

Confirmation Page

The confirmation page is displayed after a student successfully submits FAFSA on the Web. The confirmation page not only confirms the date and time the FAFSA was filed, but also includes the expected family contribution (EFC), estimated Federal Pell Grant and Federal Stafford loan eligibility, and a list of schools that will receive data from the student's FAFSA.

Conflicting Information

Conflicting information is any discrepancy or inconsistency in the information provided to a college, including information from the FAFSA and other financial aid application forms (such as the CSS/Financial Aid PROFILE) and federal income tax returns.

Conforming Loan

A mortgage that meets the requirements to be purchased by Fannie Mae or Freddie Mac.

Consolidation Loan

A consolidation loan is a form of refinance, where a new loan repays the outstanding balance on other loans, replacing them with a single new loan. Consolidating a borrower’s loans will streamline and simplify repayment and may result in a lower or higher interest rate, depending on the type of consolidation loan and whether the borrower’s credit has improved.

Consumer Price Index

A measure of US inflation that tracks the average change in prices that urban consumers pay for goods and services over a specified period; commonly referred to as the CPI.

Consummate

To consummate a loan involves completing the transaction by cashing the loan check or having the loan funds transferred to the school or borrower’s bank account.

Conventional Mortgage

A mortgage that isn't backed by a government agency.

Cooperative Education

Cooperative education (co-op) combines classroom learning with work experience for academic credit.

Cosigner

A cosigner agrees to repay a borrower’s debt. A cosigner is a co-borrower, equally obligated to repay the debt. If the primary borrower is late with a payment, the lender will seek payment from the cosigner. Delinquencies and defaults will be reported on the credit history of both the primary borrower and the cosigner. Cosigners often misunderstand the implications of cosigning a loan.

Cosigner Release

Some private student loan programs offer cosigner release, where the cosigner will be released from his or her obligation to repay the loan if the primary borrower satisfies credit underwriting criteria and has made the first 12, 24, 36 or 48 monthly payments on time and in full.

Cost of Attendance

A college’s cost of attendance includes the cost of tuition, fees, room, board, books, supplies, equipment, transportation, loan fees, dependent-care costs, disability-related costs and miscellaneous/personal expenses.

Cost of Education

A college’s cost of education or cost of attendance includes the cost of tuition, fees, room, board, books, supplies, equipment, transportation, loan fees, dependent-care costs, disability-related costs and miscellaneous/personal expenses.

COTW

Corrections on the Web

Course Load

Course load is the number of classes or credits taken by a student during the academic term. For example, taking five or more classes may be considered to be a heavy course load.

Coverdell Education Savings Account

A Coverdell Education Savings Account, formerly known as an education IRA, is a federal tax-advantaged account for saving for qualified K-12 and higher education expenses. Contributions are limited to $2,000 per year through age 18.

CPA

Certified Public Accountant

CPS

Central Processing System

Credit

Credit is an assessment of the likelihood that a consumer will repay a debt. For example, a borrower is said to have “good credit” if he or she will repay the debt and bad credit if he or she may have difficulty repaying the debt. To pay on credit is to use debt to purchase goods and services.

Credit Bureau

A credit bureau or credit reporting agency collects and analyzes information about a consumer’s borrowing and repaying behavior, summarizing the consumer’s credit performance in a credit rating.

Credit History

A credit history is a record of a consumer’s borrowing and repaying behavior, as tracked by a credit bureau. The credit history includes information about on-time payments, delinquencies and defaults, as well as adverse events such as bankruptcy discharges, repossessions and foreclosures.

Credit Limit

A credit limit is the maximum amount a consumer may borrow from a line of credit.

Credit Rating

A credit rating or credit score predicts the likelihood that a prospective borrower will repay the debt on time as per the agreement or promissory note. The FICO score is an example of a credit rating. Lenders use credit ratings to determine a borrower’s eligibility for a private student loan and the interest rate and fees that will be charged on the loan. Credit ratings are typically on a range from 300 to 850, with a higher score signifying a lower credit risk. A borrower with a 620 or lower credit rating is considered to be subprime. A 720 credit rating is considered to be good and a 780 or higher credit rating is considered to be excellent.

Credit Report

A credit report is a summary of a consumer’s credit history. Consumers may obtain a free copy of their credit reports from each of the three major credit reporting agencies once a year at annualcreditreport.com.

Credit Reporting Agency

A credit reporting agency or credit bureau collects and analyzes information about a consumer’s borrowing and repaying behavior, summarizing the consumer’s credit performance in a credit rating.

Credit Score

A credit score or credit rating predicts the likelihood that a prospective borrower will repay the debt on time as per the agreement or promissory note. The FICO score is an example of a credit score. Lenders use credit scores to determine a borrower’s eligibility for a private student loan and the interest rate and fees that will be charged on the loan. Credit scores are typically on a range from 300 to 850, with a higher score signifying a lower credit risk. A borrower with a 620 or lower credit score is considered to be subprime. A 720 credit score is considered to be good and a 780 or higher credit score is considered to be excellent.

Credit Underwriting Criteria

Credit underwriting criteria are the standards used by a lender to determine whether a borrower is eligible for a loan. Credit underwriting criteria may include credit reports and credit scores, information about a borrower’s income and debts, and the borrower’s debt-to-income or debt-service-to-income ratios.

Credit Union

Not-for-profit cooperatives of members with some type of common bond (e.g., employer) that provide a wide array of financial services, often at a lower cost than commercial banks.

Creditor

A creditor is a lender or other entity to whom a debt is owed.

Cryptocurrency

Digital assets that rely on blockchain technology to allow for decentralized transactions between multiple parties.

CSS

College Scholarship Service

CSS/Financial Aid PROFILE

The CSS/Financial Aid PROFILE is a financial aid application created by the College Scholarship Service of the College Board. The PROFILE is used by more than 400 colleges, universities and private scholarship programs to award their financial aid funds.

Cumulative Loan Limit

The cumulative loan limit is the maximum amount that may be borrowed in total according to the terms of a loan.

Cure

A borrower is said to cure a delinquency by bringing the account current (i.e., making all of the late payments in full, so that the account is no longer delinquent).

Current Delinquency

A current delinquency is a recent delinquency, not a delinquency that occurs in the past. A current delinquency occurs when a borrower is past due on making a payment and has not yet cured the delinquency by making the late payment.

Custodial Account

A custodial account is established to hold assets on behalf a minor.

Custodial Parent

The custodial parent is the parent with whom the student lived the most during the 12 months ending on the FAFSA application date. If the student lived equally with both parents, the custodial parent is the parent who provided more support to the student during the 12 months ending on the FAFSA application date or the most recent calendar year during which either parent provided the student with some support.

CWS

College Work-Study