APR (Annual Percentage Rate)
Annual Percentage Rate is the rate being charged to borrowers as the cost of the funds being borrowed over the term/length of the loan. This value is expressed as an annual/yearly percentage that reflects the actual yearly cost of the loan and includes any fees or additional costs related to the loan transaction. It is calculated by taking a monthly rate and multiplying it by 12 to get an annual percentage rate. (i.e. 2% per month X 12 months = 24% APR).

Cafeteria plan
An employee benefit plan under which an employee can use a specified amount of employer funds and/or salary reductions to design his or her own benefit package from an array of available benefits. Common items in a cafeteria plan include a health savings account (allowing pre-tax contributions for health related expenses) and a dependent care/flexible spending account (allowing pre-tax contributions for certain health care and dependent care expenses).

Cash Value Life Insurance
A type of life insurance under which premiums are sufficient not only to pay the insurer’s death claims and expenses, but also the ability to build up cash accumulation within the policy. May also be called permanent insurance, whole life insurance or universal life insurance.

Combining federal student loans into one repayment plan through one lender in order to receive a lower monthly payment and a longer repayment period.

Debt-to-Income Ratio
Lenders use your personal debt-to-income ratio when deciding whether to loan you money. The total all of your monthly debts divided by your total monthly income.

Total Debt ÷  Total Income = Debt Ratio
$2,000   $6,000   33%



When applying for a mortgage, lenders look at the front ratio (the debt to income ratio including housing costs) and the back ratio (the non-mortgage debt to income ratio). Typically, lenders would prefer your front ratio at 36% or less and your back ratio at 28% or less. Of course, there are other factors that go into a lender’s decision when lending money.

Decreasing Term life insurance
The purpose of this may be to cover an obligation for the owner that continues to decrease over a specific time period, such as a mortgage loan, child support or business loan. These are created to protect the debtor.

Deductible Student Loan Interest
Up to certain limits and income limitations, student loan interest may be deductible from your taxes.

A period of time when a borrower is allowed to postpone student loan repayment (under certain applicable conditions) without cost or penalty. The interest on the unsubsidized loans continues to accrue during deferment at the borrower's expense.

Federal Loan
This type of loan encompasses Stafford, Grad PLUS and other federally sponsored loans that are guaranteed by the government.

Fixed Rate Loan
A loan or mortgage with an interest rate that will remain at a predetermined rate for the entire term of the loan.

If you do not meet the requirements for a deferment, but are temporarily unable to make your loan payments, forbearance allows you to temporarily stop making payments on your loan, temporarily make smaller payments, or extend the time for making payments.

Income Based Repayment (IBR)
Under the IBR plan, your payment is based on your adjusted gross income and family size and adjusts once a year. There is currently a proposal to change the IBR formula which would lower the required monthly payment from 15% of discretionary income to 10%. If the proposed change is passed into law it is expected to take effect in the first half of 2012.

IBR example 1: Adjusted gross income $65,000, family size 1
Old IBR (15%) - Payment = $608/mo
New IBR (10%) - Payment = $405/mo

IBR example 2: Adjusted gross income $110,000, family size 2
Old IBR (15%) - Payment = $1,099/mo
New IBR (10%) - Payment = $733/mo

Mutual Fund
An investment company that continuously offers new equity shares in an actively
managed portfolio of securities. All shareholders participate in the fund’s gains or losses. Shares are redeemable on any business day at the net asset value. Each mutual fund’s portfolio is invested to match the objective stated in the prospectus.

Opportunity Cost
The implied cost of undertaking a financial action. It is usually represented as the rate that could have been earned by investing in an alternative activity with the same resources.

Private Loan
A loan granted by a private organization such as a bank, credit union, or private loan service provider. This is also a credit-based loan. These loans are in no way federally-based and are typically subject to the variable terms of the lending organization.

The transfer of funds from one qualified retirement plan to another qualified retirement plan. If this is not done correctly and within a specified time period, the funds are taxed as ordinary income and a penalty may apply.

Roth IRA
A type of individual retirement account in which after-tax contributions are required, but earnings and distributions after age 59½ are not taxed.

Traditional IRA
A type of individual retirement account in which pre-tax contributions are required, earnings grow tax deferred, and then upon withdrawal in retirement (after age 59½) income is fully taxable at current ordinary income tax rates.

Variable Rate Loan
A floating interest rate, also known as a variable rate or adjustable rate, refers to any type of debt instrument, such as a loan, bond, mortgage, or credit that does not have a fixed rate of interest over the life of the instrument.




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 Financial Planning for Veterinary Students


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