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Key college financial aid terms defined: Here's what they mean

Here are a few of the key terms that you’ll likely come across during the financial aid process.
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Financial aid terms can seem like a foreign language if you’re not used to using them. When you and your student fill out the free application for student aid, you have to learn the acronym FAFSA; when you and your student meet with financial aid counselors, they will use the word “gift aid,” and two to four years later your student will hear the words “exit counseling.” Understanding and learning these and other terms can help make communicating with advisors in the financial aid office easier. Here are a few of the key terms that you’ll likely come across during the financial aid process.

Award letter

An award letter is a detailed statement of financial assistance available to a student in the form of scholarships, grants, federal loans, and work-study. The money offered in the letter is based on the student’s financial need and is determined by the information the family provided in their FAFSA application.


A borrower can be a student, parent, or guardian who takes out a loan from a school or organization. Borrowers assume full responsibility for their loans and must sign a legally binding promissory note stating that they will repay the lien holder by a specified time and with interest.

Cost of attendance (COA)

The cost of attendance is the total amount of money it will cost to attend a school. This includes room and board, transportation, books, health insurance, student activity, and service fees.


A co-signer is someone, often a parent or guardian, who shares legal responsibility with a student for repaying a loan. Students who do not meet a lender’s qualifications to borrow money, because of their credit history or lack thereof, often need co-signers.

Exit counseling

Once someone graduates from college and their loans have come to an end, they must exit the loan. Exit counseling is a required information session for students with a financial aid counselor at the school. During the session, counselors explain the loan repayment requirements for repaying that loan to the graduate.

Expected family contribution (EFC)

This is the amount of money that a family is expected to contribute to the cost of a student’s tuition, based on the parent’s or student’s income calculated during the FAFSA. This number is factored in to how much financial aid a student will receive.


The Free Application for Federal Student Aid is what students and families complete in order to qualify for financial assistance from the United States Department of Education. According to the Department of Education, each year nearly 13-million people apply for financial assistance, and over $150 billion is awarded to students.

Federal student aid pin

Federal student aid pins are a unique identifier for those who fill out the FAFSA application. With the ID, people are able to sign official documents online. The FSA ID can also be used to log on to other federal student sites like and

Federal Pell Grant

A Pell Grant is a federal grant awarded to first-time undergraduate students with financial need by the Department of Education. Pell grants typically do not have to be repaid unless a student withdraws early from a program or receives a substantial amount in scholarships or grants to cover their tuition, which results in them no longer needing the Pell grant. If a student’s enrollment status changes from full-time to part-time they might see a reduction in their grant, and if they make that change after the grant has been disbursed they might be asked to repay the unused portion back.

Gift aid

Gift aid is money awarded to students that does not have to be paid back. Two forms of gift aid are scholarships and grants.

Grace period

The grace period is the amount of time before you must begin repayment of a loan. While not all loans have a grace period, most start six months after a student graduates, leaves school, or drops below half-time enrollment.


Grants are a form of financial aid that is awarded to students with financial needs and does not have to be paid back.


Lenders are organizations that allow you to borrow money. Schools, banks, credit unions, and the Department of Education act as lenders to students, parents, and guardians.


Interest is a loan fee charge that borrowers pay lenders. The amount is calculated as a percentage of the unpaid amount of debt.

Direct consolidation loans

This is a bundle of federal loans from the Department of Education that are consolidated, or combined, into a new loan.

Direct loans

Direct loans are given out through the William D. Ford Federal Direct Loan Program. In this case, the Department of Education is the lender, as opposed to a bank or other financial institution.

Subsidized loans

Subsidized loans are based on financial need and the interest that accrues while the student is in school is paid by the federal government. The student doesn’t have to make any payments until they graduate.

Unsubsidized loans

This type of loan accrues interest from the date they are granted and continues until the loan is paid off. Borrowers are required to pay the interest on these loans regardless of the loan status.

PLUS loan

PLUS loans are made available to graduate students directly and to parents of undergraduate students. These are typically large loans with higher interest rates. In order to qualify for a PLUS loan, the borrower cannot have an adverse credit history. Interest on PLUS loans accrue once the loan is disbursed. Graduate students enrolled in school at least part-time do not have to pay the interest on the loan. They are expected to begin repaying the loan six months after they graduate unless they defer their payments. Parent borrowers are expected to being repayment of the loan once it is fully disbursed with interest but they can request to defer the payments while their student is enrolled in school at least part-time or up until six months after they graduate.

Private loan

Private loans can be borrowed from a bank, credit union, school, or state agency. They are not loans given by federal or state governments.


The principal is the total amount of money borrowed in a loan.

Promissory note

The promissory note is a document of terms and agreements signed by a borrower stating that they will repay a lender.

Net price

The net price is the total cost that a student and their family will pay out of pocket for school. This price is determined by subtracting scholarships, gifts, and grants from the institution’s cost of attendance.


Scholarships are a form of financial aid that is awarded to students for their merit or achievements by schools and organizations. Most scholarships have application processes. Some schools also award students “full ride” tuition scholarships based on merit that do not require an application.

Student Aid Report (SAR)

Once you have completed your FAFSA, a summary report of what you filed, known as the Student Aid Report (SAR), is generated. The report details the total amount a family is expected to contribute. The report is also sent to colleges and universities to use in determining student aid eligibility.


Work-study is a federal program that provides students with part-time employment while enrolled in school to help pay for expenses. This program is not offered to every student and opportunities are contingent upon the student’s college being enrolled in the federal program.

If you are looking for more guidance on financial aid terms, visit the Department of Education’s student aid glossary.

Parent Toolkit resources were developed by NBC News Learn with the help of subject-matter experts, including Mark Kantrowitz, Publisher and VP of Strategy, and Sharon Sevier, Advocacy Director, Missouri School Counselor Association.