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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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L.L.B.

Bachelor of Laws (Legum Baccalaureus), a law degree.

Last Dollar

A grant or scholarship is said to be “last dollar” if it is intended to be awarded after all other forms of financial aid and will be reduced if the student is overawarded. Many state grants are last dollar programs.

Late Fee

When a loan payment is delinquent, the borrower may be charged a late fee. Late fees on federal education loans may be no more than 6 percent of the overdue payment.

Leave of Absence

A leave of absence is an approved period of time away from work or school.

Legacy Applicant

A legacy applicant is an applicant whose relatives (including parents and grandparents) are alumni of the college. Some colleges provide admissions preferences to legacy applicants.

Legal Custody

Legal custody of a child is the right to make decisions concerning a child’s welfare, including the child’s education, health, religion and finances. This is in contrast with physical custody of the child, which determines where the child resides.

Legal Dependent

A legal dependent is a child who receives more than half of his or her support from the student, including biological, adopted and unborn children. The children do not have to live with the student. Legal dependents also include other people, other than a spouse, who live with and receive more than half their support from the student and will continue to do so through the end of the award year.

Legal Guardian

A legal guardian has been granted legal custody of another person by a court in the child’s state of legal residence, such as a child whose parents are incapacitated or deceased.

Lender

A lender is a bank or financial institution that lends money to a borrower in exchange for payments of principal and interest.

Lender Subsidies

Lender subsidies are payments made by the federal government to lenders in the FFEL program to encourage the lenders to participate in the loan programs. These include guarantees of a minimum spread between the interest rate received by the lender and the lender’s cost of funds in the form of special allowance payments. It also includes the guarantees against borrower default.

LEU

Lifetime Eligibility Used

Level Amortization

Level amortization or level payments refers to a repayment schedule where every payment is the same.

Leveraging

Leveraging uses financial aid funding as a recruitment tool to attract academically or athletically talented students or wealthy students. It can involve the awarding of non-need-based aid as well as adjusting the mix of grants and loans in a need-based financial aid package (preferential packaging).

LIBOR

The London Interbank Offered Rate (LIBOR) is the average interest rate at which large banks in London lend money to each other. The interest rates on variable-rate private student loans are often pegged to the LIBOR index plus a fixed margin.

Lifetime Eligibility Used (LEU)

A Federal Pell Grant may be received for up to the equivalent of six years. The Lifetime Eligibility Used (LEU) is a measure of the number of years’ worth of Federal Pell Grant funding that has been used, up to 600%.

LIHEAP

Low Income Home Energy Assistance Program

Line of Credit

A line of credit is an amount of credit made available to a borrower. The borrower may borrow up to the credit limit, but isn’t charged interest until the borrower draws down on the line of credit. Interest is charged only on the outstanding balance. Interest rates on a line of credit are usually variable.

Litigation

Litigation is a lawsuit or other legal action.

Loan

A loan is money borrowed from the government, a bank or another source. Loans must be repaid, usually with interest, over a specific period of time.

Loan Discount

A loan discount, sometimes called a borrower benefit, reduces the cost of the loan as an incentive to encourage particular types of borrower behavior. For example, a lender might offer to reduce the interest rate on the loan if the borrower makes the monthly loan payments through automatic direct debit (auto-debit) from the borrower’s bank account. Lenders have sometimes offered principal reductions or interest rate reductions to borrowers who make all of their monthly payments on time.

Loan Forgiveness

Loan forgiveness is the cancellation of debt, usually for performing employment or other services for a period of time.

Loan Holder

The loan holder is the bank or financial institution that holds title to the loan. Since loans may be sold, the loan holder is not necessarily the lender that originated the loan.

Loan Limit

A loan limit is the maximum amount that may be borrowed. Examples include annual limits and cumulative limits.

Loan Origination

Origination of a loan involves processing a borrower’s loan application, denying or approving the loan application, and disbursing the loan.

Loan Period

A loan period is the portion of an academic year for which a loan is obtained. The loan period comprises one or more academic terms or an entire academic year.

Loan Portfolio

A loan portfolio is a collection of loans that are the assets of a single holder.

Loan Rehabilitation

Loan rehabilitation is a process that returns a defaulted federal education loan to active repayment status and clears the default from the borrower’s credit history. There are two ways to rehabilitate a defaulted federal education loan. One involves making 9 out of 10 consecutive, on-time, full, voluntary, reasonable and affordable monthly payments on the loan. The other involves consolidating the loan with a requirement that the borrower repay the loan in the income-based repayment plan. Rehabilitation is a one-time opportunity to remove the default from the borrower’s credit history and regain eligibility for federal student aid. If the borrower defaults again, the only option to clear the default is to repay the debt in full.

Loan Servicer

A loan servicer is a company that manages sending out statements and coupon books and collecting payments on a loan, as well as other customer service functions. Some lenders service their own loans, while others outsource it to a third party company that specializes in servicing loans.

Loan Status

The loan status indicates the repayment status of a loan, such as the loan being in an in-school deferment, grace period, repayment (current or delinquent), economic hardship deferment, forbearance, charged-off or paid-in-full.

LSAT

Law School Admissions Test