Financial Literacy Terms

Adjustable rate mortgage (ARM)
An adjustable rate mortgage is a long-term loan you use to finance a real estate purchase, typically a home.

The interest rate on an ARM is adjusted, or changed, during its term.

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Annual percentage rate (APR)
What credit costs you each year, expressed as a percentage of the loan amount.

Assets are everything you own that has any monetary value, plus any money you are owed.

Award Letter
The award letter is sent by the Office of Financial Aid and provides information on the types and amounts of aid offered as well as specific program information, student responsibilities and the conditions that govern the award.

Award Year
The Hope College Award Year includes the fall and spring semesters and the subsequent summer sessions.

Bankruptcy means being insolvent, or unable to pay your debts.

In that case, you can file a bankruptcy petition to seek a legal resolution.

A beneficiary is the person or organization who receives assets that are held in your name in a retirement plan, or are paid on your behalf by an insurance company, after your death.

Bonds are debt securities issued by corporations and governments.

A budget is a written record of income and expenses during a specific time frame, typically a year.

Capital is money that is used to generate income or make an investment.

Capital gain
When you sell an asset at a higher price than you paid for it.

Capital loss
When you sell a capital asset for less than you paid for it.

Capitalization of Interest
Capitalizing interest means adding unpaid, accumulated interest to the principal balance of your loan. Capitalization increases the total cost of your loan. If you choose to let your interest be capitalized, you repay more money in total than if you pay the interest while you are in school.

Whichever option you choose, you are responsible for paying the full amount of all interest on the loan.

Car insurance
Car insurance covers theft of and damage to your car or damage that your car causes, plus liability protection in case you are sued as a result of an accident.

Cash flow
Money coming into your accounts and the money you are spending over a specific period.

Cash value
Cash value is the amount that an account is worth at any given time.

Central Processing System (CPS)
The federal contractor that processes your FAFSA data. The CPS performs database matches and calculates your official Expected Family Contribution (EFC), sends you your electronic Student Aid Report (SAR), and electronically transmits your FAFSA data (your ISIR record) to Hope College.

Checking account
Checking accounts are transaction accounts that allow you to authorize the transfer of money to another person or organization either by writing a check that includes the words “Pay to the order of” or by making an electronic transfer.

Closing costs
Expenses paid to finalize a transaction over and above the cost of property/real estate.

Assets with monetary value used to guarantee a loan.

Collection Agency
A business organization that accepts from schools and lenders those loan accounts that have become delinquent or are in default and attempts to collect on these accounts.

Commuter Student
The definition of a commuter student at Hope College is a student who is enrolled in on-campus coursework but is not living in on-campus housing.

Compound interest
When the interest you earn on an investment is added to form the new base on which future interest accumulates.

Consumer price index (CPI)
The consumer price index (CPI) is compiled monthly by the US Bureau of Labor Statistics and is a gauge of inflation that measures changes in the prices of basic goods and services.

Cost of Attendance
Your cost of attendance includes tuition, activity fee, room/board charges, and allowances for books/supplies, transportation, and other miscellaneous expenses.

Cost-of-living adjustment (COLA)
A wage or benefit increase that is designed to help you keep pace with increased living costs that result from inflation.

Credit rating
A credit rating is an independent evaluation of the credit risk, or likelihood of default, posed by an issuer of debt or by a specific debt issue.

Credit risk
Credit risk is the possibility that the issuer of a debt security will default, or fail to meet its obligation to make interest payments and repay principal to investors.

Credit score
Your credit score is a number, calculated based on information in your credit report, that lenders use to assess the credit risk you pose and the interest rate they will offer you if they agree to lend you money.

Debit card
A card that allows you to make point-of-sale purchases by swiping the card through the same type of machine you use to make credit card purchases.

A debt is an obligation to repay an amount you owe.

Debt-to-equity ratio (D/E)
An indication of the extent to which the company is leveraged, or financed by credit.

Calculated by dividing total long-term debt by total assets minus total debt.

When a borrower responsible for repaying a loan or making an interest payment fails to meet that obligation on time.

A period of time during which students are not required to make loan payments, such as while enrolled at least half-time (six hours or more). Federal Direct Unsubsidized Loans do have interest accruing during periods of deferment (see Unsubsidized below).

Dependent Student
A student who does not qualify as a self-supporting/independent student by federal definition and whose parental income and asset information is used in calculating the Expected Family Contribution/EFC (see independent student).

The process by which your financial aid funds are applied to your account as credits to offset your billing charges.

Typically, one-half of your financial aid award is credited to your fall semester charges and the other half is credited to your spring semester charges.

A document explaining how a financial product or offering works. It also details the terms to which you must agree in order to buy it or use it, and, in some cases, the risks you assume in making such a purchase.

Down payment
An amount of the total cost of a property that you pay in cash as part of a real estate transaction.

Electronic Promissory Note
A Federal Direct Loan or Federal Perkins Loan Promissory Note that a borrower signs electronically on the Web (in lieu of a paper document). A PIN (Personal Identification Number) is required and serves as the borrower’s electronic signature.

Electronic Signature
Student borrowers can electronically sign both their Federal Direct Loan and Federal Perkins Loan promissory notes online using provided PINs that serve as their electronic signature.

Emergency fund
An emergency fund is designed to provide financial back-up for unexpected expenses or for a period when you aren’t working and need income.

eSAR (electronic Student Aid Report)
A summary of the information that the applicant put on the FAFSA. The CPS electronically provides a link to the eSAR to each federal aid applicant that has provided an email address on the form. If the applicant did not provide an email address, the CPS will send a paper version.

Expected Family Contribution (EFC)
The amount a student and his/her family are expected to contribute toward the student’s cost of attendance as calculated by the congressionally mandated formula known as the Federal Methodology. This EFC is derived from the data you submit on the FAFSA.

Face value
The dollar value of a bond or note, the amount the issuer has borrowed, usually the amount you pay to buy the bond at the time it is issued, and the amount you are repaid at maturity, provided the issuer doesn’t default.

Free Application for Federal Student Aid. To apply for federal student financial aid, and to apply for many state student aid programs, students must complete a Free Application for Federal Student Aid (FAFSA).

The information you provide on your FAFSA determines if you are eligible for financial aid.

Fair market value
The price you would have to pay to buy a particular asset or service on the open market.

The Federal Educational Rights and Privacy Act.

FICO score
Based on the information in your credit report, is calculated weighing the amount of debt you carry relative to your available credit, the timeliness of your payments, the type of debt you carry, and a great many other factors to assign you a credit score between 300 and 850.

Finance charge
The total dollar amount you pay to borrow that includes the interest that’s charged plus any fees for arranging the credit, if they apply.

Financial Aid Package
An offer of financial aid made to a student that is comprised of a combination of different forms of financial aid (scholarships, grants, loans, employment).

Financial Need
The difference between the school’s cost of attendance (COA) and the family’s ability to pay (or EFC). Can be expressed using the following formula, COA minus EFC = Financial Need.

Financial plan
A document that describes your current financial status, your financial goals and when you want to achieve them, and strategies to meet those goals.

Fixed-rate mortgage loan
A long-term loan that you use to finance a real estate purchase, typically a home.

Permitting the temporary halting of loan repayments, allowing an extension of time for making loan payments, or accepting smaller loan payments than were previously scheduled.

When your lender repossesses your home because you have defaulted on your mortgage loan or home equity line of credit by failing to pay interest and repay the principal you owe on time.

Fulltime Enrollment
Enrolling for 12 or more credit hours in a given semester.

Gift Aid
Normally refers to scholarships and grants that are non-repayable forms of financial aid. Some of these awards have grade point renewal criteria while others do not.

Grace period
The number of days between the date a card issuer sends your billing statement and the date your payment is due. By law, it must be at least 21 days. The grace period on a student loan allows you to defer repayment so that the first installment isn’t due until six or nine months after you graduate or are no longer enrolled at least half time.

The timing depends on the type of loan. There’s also a grace period in which to pay an insurance policy premium before the policy is canceled. It may be as long as one month after the due date.

A type of financial aid that does not have to be repaid; usually awarded on the basis of financial need.

Gross domestic product (GDP)
The total value of all the goods and services produced within a country’s borders is described as its gross domestic product.

Identity theft
Identity theft is the unauthorized use of your personal information, such as your name, address, Social Security number, or credit account information.

Independent/Self-Supporting Student
A student who meets the definition of an independent student does not have to report any parental information on the FAFSA.

Instead, need is based solely on his/her income and asset information.

Individual retirement account (IRA)
Individual retirement accounts are a type of individual retirement arrangements (IRAs) that provide tax advantages as you save for retirement.

A persistent increase in prices, often triggered when demand for goods is greater than the available supply or when unemployment is low and workers can command higher salaries.

Institutional Student Information Record (ISIR)
The electronic format of a student’s FAFSA information from CPS (see above) used by a school to determine the student’s eligibility for financial assistance.

Insufficient funds
When one does not have enough money available in a checking account to cover the checks you’ve written or electronic debits you’ve authorized.

What you pay to borrow money using a loan, credit card, or line of credit.

A legal agreement that provides for the use of something — typically real estate or equipment — in exchange for payment. A lease is usually legally binding, which means you are held to its terms until it expires. If you break a lease, you could be held liable in court.

The amounts you owe to creditors, or the people and organizations that lend you money. Typical liabilities include your mortgage, car and educational loans, and credit card debt.

An abbreviation for the London Inter-Bank Offered Rate, an interest rate set daily in London. This is the financial index to which many adjustable rate loans are tied when they have short-term adjustment periods.

Life insurance
A contract you sign with an insurance company, obligating it to pay a death benefit of a certain value to the beneficiaries you name.

Line of credit
A revolving credit arrangement you establish with a lender. The lender sets the credit limit, which is the most you can borrow under the arrangement.

A form of financial assistance that requires repayment, generally after the student graduates or ceases to be enrolled at least half-time (six hours or more).

Loan Cancellation
Forgiveness from repaying a portion of a specified student loan based on the student entering an identified profession or volunteer organization or because of other qualifying circumstances.

Master Promissory Note/Direct Loans
This document acts as a student’s promise to repay Federal Direct subsidized and unsubsidized loans.

The master note feature allows the student to sign only once for her/his first loan proceeds, and continues to bind the student to repay all future amounts borrowed under the program. Master Promissory Notes are made available online and can be electronically signed using a PIN.

Master Promissory Note/PLUS Loan
A document with a promise to repay that parents must sign the first time they borrow for each child under the Federal Direct PLUS loan program. Parents submit an application to the college and, if approved by the Department of Education, the Master Promissory Note is made available online and can be electronically signed using a PIN.

Matching contribution
Money your employer adds to your retirement savings account, such as a 401(k).

Money market
A continual buying and selling of short-term liquid investments including treasury bills, certificates of deposit (CDs), commercial paper, and other debt issued by corporations and governments.

A temporary right to the real estate that you are buying with a loan to lender who has given you the loan.

The property serves as collateral, or security, that you will repay what you borrowed plus interest.

Mutual fund
A professionally managed investment product that sells shares to investors and pools the capital it raises to purchase investments typically buys a diversified portfolio of stock, bonds, or money market securities, or a combination of stock and bonds, depending on the investment objectives of the fund.

National Student Loan Data System (NSLDS)
A U.S. Department of Education web database that allows students to access their federal grant and loan information with use of a PIN (see below).

Need Analysis
A congressionally mandated formula that analyzes students’ and their parents’ household and financial information reported on the FAFSA, to determine a family’s estimated ability to contribute to the cost of education. Schools use the resulting EFC (see above) to determine aid eligibility based on the cost of attendance.

Net income
The amount of money a corporation has earned after subtracting all of the expenses of producing its goods or services from the income or revenue it has realized from sales of those goods or services.

Net worth
The value of the assets you own (including cash, securities, personal property, real estate, and retirement accounts) minus your liabilities (what you owe in loans and other obligations).

A debt security that promises to pay interest during the term that the issuer has use of the money, and to repay the principal on or before the maturity date.

On-Campus Student
Hope College’s definition of an “on-campus” student is one who lives in the college residence halls/cottages/apartments.

The right to buy or sell a specific financial instrument at a specific price, called the strike price, during a preset period of time.

Origination fee
An amount, usually calculated as a percentage of a mortgage loan or home equity loan, which a lender charges for processing your application.

Outside Scholarship
A form of financial assistance from a source other than the traditional federal, state and institutional student assistance programs (e.

g, from a church, a foundation, etc.), that usually does not have to be repaid. Outside scholarships must be considered when calculating a student’s eligibility for need-based aid.

Occurs when a student receives financial assistance in excess of demonstrated need, requiring a reduction or repayment of some aid funds.

Part-time Enrollment
Enrollment level less than 12 credits during a semester or term.

A student’s or parent’s Personal Identification Number from the U.S. Department of Education that allows the student to access her/his student aid application and federal assistance information on the Internet.

When one owns more than one security.

A portfolio is built by buying additional stock, bonds, annuities, mutual funds, or other investments.

Preferred stock
An equity investment issued by a corporation to trade in the secondary market. It’s listed separately from common stock issued by the same corporation and trades at a different price.

Pretax income
Sometimes described as pretax dollars, is your gross income before income taxes are withheld.

Price-to-earnings ratio (P/E)
The relationship between a company’s share price and its earnings. It is calculated by dividing the current price per share by the earnings per share.

Prime Interest Rate
A financial index to which many adjustable rate loans are tied when they have short-term adjustment periods.

An amount of money you invest, the face amount of a bond, or the balance you owe on a debt, distinct from the finance charges you pay to borrow.

Also called net income or earnings, is the money a business has left after it pays its operating expenses, taxes, and other current bills.

Promissory Note/Perkins Loan
Students who borrow under the Federal Perkins Loan program are required to sign a promissory note documenting their loan along with their promise to repay upon graduation or less than half-time enrollment (less than six hours). Student borrowers are able to secure a PIN number via the Web and to sign their notes electronically.

Rate of return
Income you collect on an investment expressed as a percentage of the investment’s purchase price.

Repayment Schedule
A calculated list of monthly loan payments over a certain period of time based on the student’s total amount borrowed and the interest rate in effect at the time of repayment.

The profit or loss you have on your investments, including income and change in value.

The possibility one will lose money if an investment you make provides a disappointing return. All investments carry a certain level of risk, since investment return is not guaranteed.

Roth IRA
An individual retirement arrangement (IRA) to which you make after-tax contributions and withdraw earnings tax free any time after you turn 59 1/2, provided your account has been open at least five years.

Satisfactory Academic Progress
Federally required minimal standards of academic progression toward a degree that student aid applicants must meet to remain eligible for financial aid funds.

Savings account
A deposit account in a bank or credit union that pays interest on your balance — though some institutions require that you have at least a minimum amount in the account to qualify for earnings.

A form of student assistance based on academic achievement or some other form of talent or accomplishment. Scholarships usually do not have to be repaid.

Self-Help Assistance
Loans and work-study funds.

Spending plan
A plan that can help you manage your money more effectively, live within your income limits, reduce your reliance on consumer credit, and save for the things you want.

Student Aid Report (SAR)
A paper summary of the information provided on the FAFSA that the CPS sends to federal aid applicants. (Applicants that give an email address on the FAFSA receive an eSAR instead, see above). The SAR includes an acknowledgement letter and a section that may be used to make corrections if necessary. Corrections can also be made electronically at www.fafsa.ed.

gov using the federal PIN.

Subsidized Loan
A student loan based on demonstrated financial need on which no interest is charged while the student maintains at least half-time enrollment (six hours or more.)

Supplemental Application
A form that schools may require in addition to the FAFSA. Click on the links below to obtain the Hope College’s Supplemental Application for Financial Aid (SAF) and related information.

Term insurance
A policy that provides a guaranteed death benefit for a set period of time, such as five, ten, or 20 years, provided you continue to pay the premiums as they are due.

Time value of money
Money’s potential to grow in value over time. Money that’s available in the present may be considered more valuable than the same amount in the future.

A legal entity through which a trustee holds title to assets on behalf of a beneficiary or beneficiaries. The trustee has a fiduciary obligation to manage the assets in the best interests of the beneficiary and distribute those assets according to the instructions provided in the trust document, or agreement, that established the trust.

Describes when an asset has lost value. You are underwater if you owe more on a loan secured by a home or other real estate than the current market value of the property.

University Accounting Service (UAS)
Hope College’s servicing agent for the Federal Perkins Loan program. UAS administers the electronic promissory note process for Perkins Loan borrowers at Hope College and services Perkins Loans made to Hope students throughout the entire repayment period.

Unsubsidized Loan
A loan that students may receive in addition to need-based financial assistance where interest charges accumulate while the student is enrolled. The student may choose to make interest and principle payments, interest payments only, or have interest accumulate and be “capitalized” (see above) while enrolled at least half-time (six hours or more).

US Treasury bill (T-bill)
The shortest-term government debt securities. They are issued with a maturity date of 4, 13, 26, or 52 weeks. The par value is $100, which is also the minimum purchase.

US Treasury bond
A long-term government debt securities with 30-year terms. These bonds are considered among the world’s the most secure investments since they are backed by the full faith and credit of the US government

A federally required quality control measure to ensure the accuracy of data reported on the FAFSA.

Students with applications selected by the CPS (see above) for verification must submit household and financial information to the Office of Financial Aid as requested.

Yield is the rate of return on an investment expressed as a percent usually calculated by dividing the amount you receive annually in dividends or interest by the amount you spent to buy the investment.