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Financial Literacy Glossary

• 529 Plan
  A tax-advantaged savings plan designed to help families save money for future educational costs.  
• Accrued Interest
  The interest that accumulates on a simple interest college loan. The interest on the unpaid principal balance is calculated daily and becomes the accrued interest.
• Amortization
  A process by which the education loan is gradually reduced to zero through payments that are scheduled over a predetermined period of time.
• APR (Annual Percentage Rate)
  The cost of borrowing money on a yearly basis, expressed as a percentage rate.
• Borrower Protections
  Policies and safeguards designed to help individuals manage their loans, especially in times of financial hardship. These protections apply primarily to student loans, mortgages, and other types of consumer debt, ensuring that borrowers have options to avoid default and financial distress.
• Budget
  A financial plan that outlines expected income and expenses over a specific period, such as a month or year. A budget typically categorizes income (e.g. , salary, allowances, financial aid) and allocates it to different expense categories like housing, food, transportation, entertainment, and savings.
• Bursar (Student Financial Services)
  A member of the college administrative staff responsible for billing and payments related to tuition, fees, and related expenses, including housing or meal plans.
• Certificate of Deposit (CD)
  A savings tool from a bank or credit union that has a fixed maturity date and a fixed interest rate.
• Compound Interest
  When you earn interest on both the money you save, and the interest you earn.
• Cosigner (or Co-Borrower)
  A creditworthy individual who takes on the responsibility of repaying the education loan if the student borrower defaults on the repayment. Students who have little or no credit history are required to have someone cosign in order to be approved for an education loan.
• Cost of Attendance
  An estimated total cost of direct and indirect expenses for one academic year before financial aid. It includes tuition and fees, books and supplies, room, board, and living expenses.
• Credit
  The ability to borrow money or access goods and services with the promise to pay for them later, typically with interest. It allows individuals to make purchases or take out loans and repay the amount over time. Credit can be extended in various forms, including credit cards, loans, and lines of credit.
• Credit Balance
  The amount of money that a borrower or account holder owes, which is available to be used or applied to future payments or charges. In the context of credit cards, it refers to the amount of debt that remains after the last payment was made or the amount still owed to the credit issuer.
• Credit Bureaus
  Companies that collect and maintain information about an individual鈥檚 credit history. They compile data from lenders, credit card companies, and other financial institutions to create credit reports. The three major credit bureaus in the United States are Equifax, Experian, and TransUnion. Their reports provide information to lenders to determine whether to approve credit applications and at what interest rate.
• Credit Inquiries

  Occurs when a lender, financial institution, or other authorized party checks an individual鈥檚 credit report to evaluate their creditworthiness. There are two types of credit inquiries:

  1. Hard Inquiries (Hard Pulls): Occurs when a lender checks your report as part of a decision-making process for approving a loan, credit card, or mortgage. Hard inquiries can temporarily lower your credit score, especially if you have multiple inquiries in a short period of time.
  2. Soft Inquires (Soft Pulls): Happens when you check your own credit or when a company checks your credit for preapproval offers, background checks, or account reviews. Soft inquiries do not affect your credit score.
• Credit Limit
  The maximum amount of credit that a lender or financial institution allows a borrower to use on a credit card or line of credit. For example, if your credit card has a $2,000 credit limit, you can spend up to that amount but not exceed it without penalties or additional fees. Keeping your balances well below the limit can help maintain a healthy credit score.
• Credit Report
  A detailed record of an individual鈥檚 credit history compiled by credit bureaus (such as Experian, Equifax, and TransUnion). It includes information about credit accounts (e.g., credit cards, loans), payment history, outstanding debts, credit inquiries, and any negative events like late payments, defaults, or bankruptcies. Credit reports are used by lenders, landlords, and other financial institutions to assess an individual鈥檚 creditworthiness and determine their eligibility for loans, credit, or other services.  
• Credit Score
  A numerical representation of a person鈥檚 creditworthiness, which reflects their ability and reliability to repay borrowed money. It is calculated based on factors such as payment history, credit utilization, length of credit history, types of credit used, and recent credit inquiries. Credit scores typically range from 300 to 850, with higher scores indicating better credit management and lower risk to lenders.
• Credit Usage
  How an individual uses their available credit, such as borrowing money through credit cards, loans, or lines of credit, and how they manage the repayment of those borrowed amounts. It includes actions like charging purchases to a credit card, taking out a loan, or using a revolving line of credit.
• Credit Utilization
  The percentage of available credit that an individual is currently using. It is calculated by dividing the total credit card balances by the total credit limits and then multiplying by 100. For example, if you have a credit card balance of $500 and a credit limit of $1,500, your credit utilization rate would be 33%. A lower credit utilization rate is generally viewed favorably by lenders, as it indicates that the borrower is not relying too heavily on credit. Keeping your credit utilization below 30% is often recommended to maintain a healthy credit score.
• Debt
  The amount of money that an individual owes to another party, typically a lender or creditor. It arises when a borrower borrows money or takes out a loan with the agreement to repay it over time, often with interest. Debt can take various forms, including personal loans, credit card balances, mortgages, or student loans. Managing debt is crucial, as failure to repay debts on time can lead to financial penalties, damaged credit, and other negative consequences. 
• Deferment
  A temporary pause on loan payments, allowing borrowers to delay repayment for a specified period without facing penalties. For federal student loans, deferment is typically granted under certain conditions, such as being enrolled in school at least half-time, experiencing financial hardship, or serving in the military. During deferment, interest may or may not accrue, depending on the type of loan. Subsidized loans do not accrue interest during deferment, as the government covers the interest costs. Unsubsidized loans, however, continue to accumulate interest, which is added to the principal balance if not paid. Deferment can provide financial relief for borrowers facing temporary financial difficulties.
• Demonstrated Need
  A calculation that is the difference between the cost of attendance for a particular college and your expected family contribution.
• Disclosure Statement
  An official document that contains explicit details of the terms of a loan, including the interest rate, monthly payment amount, number of payments to be paid, and the payment due date.
• Discretionary Spending
  Non-essential expenses that individuals choose to spend money on after covering their essential needs, such as housing, food, and utilities. These expenses are flexible and can vary based on personal preference or lifestyle. Examples include dining out, entertainment, travel, shopping for clothes or gadgets, and hobbies.
• Essential Expenses
  Costs that students must pay to maintain their basic needs and living standards (such as tuition, housing, utilities, food, transportation, and health insurance.)
• FAFSA (Free Application for Federal Student Aid)
  Form used by a school to determine how much a student and their family are eligible to receive in federal financial aid. The FAFSA may also be used to determine a student鈥檚 eligibility for state and school-based aid. It may influence how much private aid a student receives.
• Federal Work-Study
  A federal-funded program that provides part-time jobs to help you earn money to pay for college expenses.
• Financial Aid
  Funding provided to students to help cover the costs of higher education, including tuition, fees, books, and living expenses.
• Fixed Expenses
  Expenses, like bills, that must be paid each month and generally cost the same amount. Some fixed expenses, like a utility bill, may also be variable because the amount changes each month depending upon usage.
• Fixed Interest Rate
  An interest rate that remains constant for the entire duration of a loan or financial agreement.
• Grace Period

  A specific amount of time after a due date during which a borrower can make a payment without facing penalties, fees, or other consequences. In the context of student loans, a grace period typically occurs after graduation, leaving school, or dropping below half-time enrollment, during which the borrower is not required to make loan payments.  

• Grants
  A form of financial aid that does not need to be repaid, typically awarded by the government, colleges, or private organizations to help students pay for educational expenses. Grants are usually need-based, meaning they are awarded based on financial need rather than academic merit.
• High-Yield Savings
  Savings account that offers a higher interest rate compared to traditional savings accounts. These accounts are typically offered by online banks or financial institutions and provide a way for individuals to grow their savings more quickly. The higher interest rate means that the money deposited in the account will earn more interest over time, helping to build savings faster. These accounts are a good option for those who want to earn more on their savings while keeping their money relatively safe and accessible.
• Income-Driven Repayment
  Federal student loan repayment options are designed to make payments more affordable by basing them on a borrower鈥檚 income and family size rather than the total loan balance. These plans are particularly helpful for borrowers with low or fluctuating incomes, as they adjust monthly payments accordingly. 
• Index Funds
  A type of mutual fund or exchange-traded fund (ETF) that aims to replicate the performance of a specific market index, such as the S&P 500 or the Nasdaq-100. Instead of actively selecting individual stocks or bonds, index funds automatically invest in the securities that make up the chosen index in the same proportions. The goal of the index fund is to provide broad market exposure, low operating expenses, and a passively managed investment strategy. 
• Interest
  The cost of borrowing money, typically expressed as a percentage of the loan amount. When you take out a loan or use a credit card, the lender typically charges interest on the amount you borrow as compensation for allowing you to use their funds. Interest can be either simple interest, where it is calculated only on the principal amount, or compound interest, where interest is calculated on both the principal and any accumulated interest. The interest rate and how it is applied (e.g., annually, monthly) can vary depending on the terms of the loan or credit agreement. Interest can increase the total cost of borrowing, so it鈥檚 important to understand the rate and how it impacts your payments.
• Interest Capitalization
  Occurs when unpaid interest is added to the principal amount of your student loan. When the interest on your federal student loan is not paid as it accrues (during periods when you are responsible for paying interest), your lender may capitalize the unpaid interest. This increases the outstanding principal amount due on the loan. Interest is then charged on that higher principal balance, increasing the amount of interest charged and the overall cost of the loan. 
• Investing
  The process of allocating money or capital to an asset, such as stocks, bonds, real estate, or mutual funds, with the expectation of earning a return or profit over time. The goal of investing is to grow wealth by taking on some level of risk in exchange for potential future gains.
• Loan Balance
  The remaining amount of money a borrower still owes on a loan, including both the principal (original borrowed amount) and any accrued interest. The balance decreases as the borrower makes payments, but it may also increase if interest accumulates or if fees are added.
• Loan-Forgiveness
  A program that cancels or reduces a borrower鈥檚 student loan debt under specific conditions. These programs are typically offered by the federal government and are designed to help borrowers who work in public service, education, or other qualifying fields.
• Loan Terms
  The conditions and details of a loan agreement between a borrower and a lender. The terms outline how the loan must be repaid, including the interest rate, repayment schedule, loan duration, and any fees or penalties associated with the loan.
• Matching Contributions
  Money that an employer adds to an employee鈥檚 retirement account, such as a 401(k), based on the amount the employee contributes. The employer typically matches a percentage of the employee鈥檚 contribution up to a certain limit. Matching contributions are essentially 鈥渇ree money鈥� that can significantly enhance an employee鈥檚 retirement savings, and are often considered a key benefit of employer-sponsored retirement plans.
• Maturity Date
  The date an investor鈥檚 investment is to be paid back in full in accordance with its agreement. A certificate of deposit (CD) contains a maturity date provision obligating the financial institution to repay an investor sums invested plus interest on a specified date.
• Merit Aid
  Refers to scholarships and other types of financial aid that are awarded to students based on their personal achievements in any academics, sports, the arts, or another field.
• Mutual Funds
   An investment vehicle that pools money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities. Managed by professional fund managers, mutual funds offer individual investors access to a wide variety of assets, which helps to spread risk. Investors in mutual funds own shares of the fund but not the individual securities within it. The value of a mutual fund share is determined by the total value of the assets in the fund divided by the number of outstanding shares.
• Overdraft Fee
  Occurs when you don鈥檛 have enough money in your bank account to cover a transaction, but the bank pays the transaction anyway.
• Payment History
  A record of a borrower鈥檚 past payments on credit accounts, such as loans, credit cards, and other financial obligations. It includes information about whether the payments were made on time, late, or missed entirely, as well as the amount paid and any defaults or delinquencies. Payment history is one of the most important factors in calculating a credit score, with a positive history (timely payments) contributing to a higher score and late or missed payments having a negative impact.
• Prime Rate
  The interest rate that commercial banks charge their most creditworthy customers. It serves as a benchmark for various types of loans, including credit cards, personal loans, and some student loans.
• Principal
  In the lending context, principal is the amount of money that you originally received from the lender and agreed to pay back on the loan with interest. In the investment context, it is the amount of money you contribute with the expectation of receiving income. 
• Retirement Account
  A type of financial account designed to help individuals save and invest for retirement. These accounts offer various tax advantages, such as tax-deferred growth or tax-free withdrawals, depending on the type of account. Common types of retirement accounts include 401(k) (an employer-sponsored plan), IRA (personal account), or Roth 401(k) (combination of 401(k) and personal contributions).
• Scholarships
  Financial awards given to students to help pay for their education, which do not need to be repaid.
• Secured Credit Card
  Credit card that typically requires a cash security deposit. The larger the security deposit, the higher the credit limit. Secured cards are often used to build credit history
• Secured Loans
  Loans in which your property (a thing you own) is used as collateral. If you cannot pay back the loan, the lender takes your collateral to get their money back.
• Stocks
  Also known as shares or equity, represent ownership in a company. When you buy stocks, you are purchasing a small percentage of that company and become a shareholder. As a shareholder, you have the potential to earn money through two main ways:  capital appreciation, where the value of the stock increases over time, and dividends, which are periodic payments made to shareholders from the company鈥檚 profits.
• Student Loan Servicer
  A company that collects payments on student loans, tracks loans while borrowers are in school, responds to borrowers鈥� questions, and handles other tasks associated with student loans.
• Subsidized Loan
  A type of loan where the government pays the interest while the borrower is in school, during a grace period, or during deferment. This type of loan is typically offered to students, such as federal subsidized direct loans, and is based on financial need. Because the interest is subsidized, the borrower does not accumulate interest on the loan during periods when payments are not required, which helps reduce the overall cost of the loan.
• Transcript
  The official record of your grades or your coursework at a school or college. You will need to submit your transcript for some types of financial aid packages, especially those that are merit-based.
• Unsecured Loan
  A loan (such as most types of credit cards) that does not use property as collateral. Lenders consider these loans to be more risky than secure loans and may often charge a higher rate of interest for them.
• Variable Expenses
  Expenses that change in amount from month to month (gas, utility bills, etc. )
• Variable Interest Rate
  A rate that can change over time based on market conditions or an underlying benchmark rate, such as the prime rate. Unlike a fixed interest rate, which remains the same throughout the loan term, a variable rate fluctuates, which means that monthly payments can increase or decrease throughout repayment.