Student-loan terms, in plain English

How a loan is paid down over time, each payment covers accrued interest first, then reduces the principal balance.

When unpaid accrued interest is added to your principal balance, so you begin paying interest on a larger amount.

Combining multiple federal loans into one new loan with a single payment and a weighted-average interest rate.

A temporary pause on payments. On certain subsidized loans, interest does not accrue during deferment.

The income used to size an income-driven payment, generally your AGI above a set multiple of the federal poverty guideline for your family size.

A temporary pause or reduction in payments during which interest continues to accrue on all loan types.

Cancellation of any remaining balance after the required years of qualifying payments on an income-driven plan (commonly 20–25 years; 30 under RAP).

Balances forgiven through income-driven or time-based forgiveness may count as taxable income federally and in a handful of states. PSLF forgiveness is tax-free.

A federal loan for graduate and professional students that can cover up to the full cost of attendance, typically at a higher interest rate.

An income-driven plan that caps payments at a percentage of discretionary income, with forgiveness at the end of its term.

The oldest income-driven plan, with payments based on income and a longer path to forgiveness.

The family of federal plans, RAP, IBR, PAYE, ICR (and formerly SAVE), that set monthly payments based on income and family size.

The U.S. Department of Education’s central database of a borrower’s federal loans. Finology imports a client’s loans directly from their NSLDS file.

A percentage fee deducted from a federal loan at disbursement, so the borrower receives slightly less than the amount borrowed.

A federal loan a parent takes out to help pay for a dependent student’s education.

An income-driven plan that caps payments at 10% of discretionary income, with forgiveness after 20 years.

Tax-free forgiveness of remaining federal Direct Loan balances after 120 qualifying payments while working full-time for a qualifying public-service or nonprofit employer.

The new federal income-driven plan taking effect July 1, 2026 under the One Big Beautiful Bill, payments of roughly 1–10% of income, a $10 minimum, and forgiveness after 30 years.

The income-driven plan introduced in 2023 that is being phased out as the 2026 rules take effect.

The company that manages a loan, billing, payments, and plan enrollment, on behalf of the lender or the Department of Education.

The default fixed-payment plan that pays a loan off over a set term. A new Standard plan applies under the 2026 rules.

On subsidized federal loans the government covers interest during school and certain periods; on unsubsidized loans, interest accrues the entire time.