Key Terms Glossary

This kind of information can be incredibly useful as you determine the return-on-investment for your degree and college of choice. If you could pay $50,000 or $200,000 in tuition and fees to become a graphic designer and you’ll probably earn a little over $50,000 per year on average, wouldn’t you pay the least amount of money possible?

Most people absolutely would, but only if they searched for this information and ran the numbers ahead of time. As you run through different scenarios, also remember to use websites like Salary.com and Glassdoor.com to compare wage data for different careers.

Don’t Leave Your Future To Chance

Student loan debt has become a national crisis, and it remains to be seen if ideas like student loan forgiveness or free college will ever come to fruition. In the meantime, all any of us can do is make sure our decisions on higher education have data to back them up.

Don’t spend six figures to earn a degree that can cost a fraction of that elsewhere — especially if you don’t have to. Also, take the time to research future salaries for careers you’re considering. You may find the career you’re planning will never fund the lifestyle you hope to have, but you’ll never know unless you dive into the data and check.

No matter what, don’t listen to the people who say to “follow your college dreams” no matter the price tag. When it comes to the cost of higher education, return-on-investment matters almost more than anything else.

Bond

A bond is a low-risk debt investment, similar to an IOU, which is issued by companies, municipalities, states and governments to fund projects. When you purchase a bond, you are lending money to one of these entities (known as the issuer). In exchange for the “loan,” the bond issuer pays interest for the life of the bond, and returns the face value of the bond at maturity. Bonds are issued for a specific period at a fixed interest rate. Each bond type involves varying degrees of risk, as well as returns and maturity periods. It’s important to note that bonds have an inverse relationship to interest rate. When interest rates rise, bond prices fall, and vice-versa.

Credit

A contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some later date with consideration, generally interest. The three major credit reporting bureaus are Equifax, Experian and TransUnion.

Credit Report

A credit report contains information that identifies you and your borrowing activity. This can include things like credit inquiries, open loans, credit cards, closed accounts, collections accounts and public records.

Credit Score

A credit score is a three-digit number based on data in your credit report that indicates how likely you are to repay a loan on time in relation to other borrowers.

Credit Utilization Ratio

The percentage of a borrower’s total available credit that is currently being utilized. This is a component used by credit reporting agencies in calculating a borrower’s credit score. Lowering the credit utilization ratio can help a borrower to improve their credit score.

Compound Interest

Compound interest is interest on both the principal (starting amount of the loan) and the compounding interest paid on that loan. Example: If you borrow $1,000 (principal) with 10% interest compounded annually. 10% of $1,000 = $100. If you’ve paid nothing on the loan after one year you will owe $1,100. But after the second year you will owe $1,210 because you now have to pay 10% of $1,100 instead of just the principal of $1,000.

EFC — Expected Family Contribution

This is the amount of money that a student’s family is expected to contribute to college costs for one year. Financial need is calculated as the difference between the cost of attending school and the expected family contribution. The EFC considers family income, assets, size of current household and the number of family members currently enrolled in college.

Exchange Traded Fund (ETF)

An exchange-traded fund (ETF) is a collection of securities—such as stocks— that tracks an underlying index. The best-known example is the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 Index. ETFs can contain many types of investments, including stocks, commodities, bonds, or a mixture of investment types. An exchange-traded fund is a marketable security, meaning it has an associated price that allows it to be easily bought and sold. The price of an ETF’s shares will change throughout the trading day as the shares are bought and sold on the market.

FAFSA — Free Application for Federal Student Aid

This is the form the federal government, state government, colleges and universities and other organizations use to award financial aid. The FAFSA should be completed by the required deadline prior to each year of college, as financial aid is determined on a year-by-year basis.

Grants

Grants are need-based gift aid. Qualification for grants is based on a student’s financial need, as determined by the FAFSA or CSS Profile. Grants for college can come from the federal government, state governments and directly from the college or university.

Inflation

Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Inflation can be viewed positively or negatively depending on the individual viewpoint and rate of change. Those with tangible assets, like property or stocked commodities, may like to see some inflation as that raises the value of their assets. People holding cash may not like inflation, as it erodes the value of their cash holdings. Ideally, an optimum level of inflation is required to promote spending to a certain extent instead of saving, thereby nurturing economic growth.

Loan

A loan is money, property or other material goods given to another party in exchange for future repayment of the loan value or principal amount, along with interest or finance charges. Examples: mortgage, car loan, home renovation, starting a business.

Return on Investment (ROI)

A performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio.

Scholarships

Scholarships are merit-based gift aid. These can be based on accomplishments such as academic performance (grades or standardized test scores), artistic or athletic ability, leadership and community service. Scholarships (with rare exception) do not have to be repaid. Scholarships can come from state governments, corporations, non-profits. Often the largest source of scholarships are those awarded directly from the college or university.

Simple Interest

Interest is the charge for the privilege of borrowing money in other words, you are paying a certain amount for the use of money. Simple interest is a set rate on the principal originally lent to the borrower that the borrower has to pay for the ability to use the money. Example: If you borrow $1,000 (principal) with 10% interest annually. 10% of $1,000 = $100. If you’ve paid nothing on the loan after one year you will owe $1,100. Each year the amount you pay will only go up by the fixed amount of $100.

Stock

A share of ownership in a business or corporation. Companies sell shares as a way to raise capital.

Stock Market Volatility

Stock market volatility in the simplest sense, measures fluctuations in stock prices. Low volatility means small fluctuations and high volatility means large fluctuations. Low volatility can be interpreted as investors being complacent, not worried. High volatility implies an element of fear in investors’ current attitudes.

Student Loans

Student loans are borrowed funds that must be repaid with interest. Student loans provided by the federal government typically have lower interest rates and more flexible repayment options than loans from private lenders, and there are several types that students may qualify for based on their financial need.

Subsidized Loan

This is a Federal Direct loan offered by the U.S. Department of Education based on financial need as determined by a student’s FAFSA. Subsidized loans are only available to undergraduate students, and the government does not usually charge interest while the borrower is in school at least half-time, for the first six months after leaving school.

Unsubsidized Loan

A type of Federal Direct loan offered by the U.S. Department of Education available to undergraduate or graduate students regardless of income or financial need. The government charges interest from the time the loan is disbursed through the life of the loan, with few exceptions.

Work Study

Federal Work-Study provides part-time jobs for undergraduate and graduate students with financial need, as a way to help them pay for education expenses while enrolled. Work-study eligibility is based on the student’s FAFSA and is administered by schools that participate in the Federal Work-Study Program