When financial aid and federal student loans aren't enough to cover all college costs, consider financing the gap with private student loans. Shop around to find the loans that best fit your needs. Show Subsidized student loans are offered to those with financial need and the government pays the interest while students are in school and during periods of deferment. All other loans are unsubsidized and the government does not pay any interest. Subsidized and Unsubsidized loans refer to Federal Direct Stafford Loans. There are two broad types of student loans:
Subsidized LoansA subsidized Federal Direct Stafford Loan is based on financial need. It is only available to undergraduate students. The advantage of a subsidized loan is that federal government -- not the student -- pays the interest for the student during the following periods:
Unsubsidized LoansAn unsubsidized loan is available to all eligible students, whether graduate or undergraduate. There is no requirement to demonstrate financial need. The student is responsible to paying the interest on the loan throughout the life of the loan. However, if the student does not wish to service the loan while in school, the accrued interest is capitalized i.e. added to the outstanding principal. EligibilityEligibility criteria for Federal Direct Stafford Loans, whether subsidized or unsubsidized, include:
In addition, qualification for subsidized loans requires the student to demonstrate ongoing financial need. Financial need is the difference between Cost of Attendance (COA) of a school and the Expected Family Contribution (EFC). After July 1, 2012, unsubsidized loans are no longer available to graduate students; they are for undergraduate students only. Loan TermsAs explained in the overview, subsidized loans offer the advantage that the government pays the interest while the student is in school. Each loan also has a grace period of six months. This is a period of time after borrowers graduate, leave school, or drop below half-time enrollment where they are not required to make payments on their federal student loans. Interest will accrue on subsidized loans made between July 1, 2012 and July 1, 2014, and all unsubsidized loans during grace periods. If the interest is not paid, it will be added to the principal balance of the loan when the repayment period begins. In addition, Federal Direct loans also include a provision for deferment. Deferment is a postponement of payment on a loan that is allowed under certain conditions and during which interest does not accrue for subsidized loans. Unsubsidized loans that are deferred will continue to accrue interest and any accrued unpaid interest will be added to the principal balance (capitalized) of the loan at the end of the deferment period. Interest RateThe interest rates for the loans first disbursed between July 1, 2012 and July 30, 2013 are as follows: Loan TypeInterest RateDirect Unsubsidized LoanFixed at 6.8%Direct PLUS Loans (Parents and graduates or professional students)Fixed at 7.9%Direct Subsidized LoanFixed at 3.4%Perkins LoanFixed at 5%Amount You Can BorrowIn both unsubsidized and subsidized loans, the amount depends upon the Cost of Attendance. For subsidized loans, the student can only borrow up to an amount equal to the difference between the cost of attendance (COA) and the expected family contribution (EFC). This chart, from US Dept. of Education shows the maximum annual and total loan limits for subsidized and unsubsidized Stafford loans as of July 1, 2012. FeesThe loan fees for federal student loans are:
Perkins Loans do not have fees. Loan fees are deducted proportionately from each disbursement. This results in the actual amount received being less than the actual borrowed amount. The actual amount borrowed has to be repaid. How to ApplyTo apply for a Direct Loan, you must first complete and submit the Free Application for Federal Student Aid (FAFSASM). Your school will use the information from your FAFSA to determine how much student aid you are eligible to receive. Direct Loans are generally included as part of your financial aid package. What is better an unsubsidized or subsidized loans?When it comes to subsidized and unsubsidized loans, subsidized loans are the clear winner. If you can qualify for them, you'll pay less money in interest charges with a subsidized loan, and you'll save money over the life of your loan. But not everyone will qualify for a subsidized loan.
How do I know if my student loan is subsidized or unsubsidized?Subsidized: Interest is paid by the Education Department while you're enrolled at least half time in college. Unsubsidized: Interest begins accruing as soon as the loan is disbursed, including while students are enrolled in school. Subsidized: No payments are due in the first six months after you leave school.
Is subsidized or unsubsidized bad?Unsubsidized loans have higher borrowing limits than subsidized loans. However, schools still set annual and total limits on borrowing based on federal government rules. Interest on unsubsidized student loans begins accruing as soon as the loan is disbursed, and you're responsible for paying it.
|