Do You Know The Difference Between Subsidized Vs Unsubsidized Loans?

The costs of college education are rapidly increasing every year, yet incomes are not rising at a similar rate. This has forced many students to rely on student loans to afford college tuition. Currently, one of the most popular loan variety is the federal loans. However, there are distinct types of federal loans, and it is advisable that you note their differences before applying for them. This guide will offer you the information you need to know by answering the question ‘what type of student loans do I have?’ as well as inform you of the types of student loans for college education.

Can you get subsidized and unsubsidized loans at the same time?

You can apply for the two distinct federal loans to help with finances. Both of them are offered by the federal government through the Department of Education. These loans can be used to cater for higher education costs at a four-year university, community college, technical school, trade or career. While both of them originate from the Department of Education and have a similar purpose, there are some differences between the two forms of student loans.

What are subsidized and unsubsidized loans?

Subsidized loans are given to undergraduate students with proof of financial need. This can be confirmed via specific documentation submitted to your specific school before the institution embarks on determining the amount each borrower is eligible to get. This amount varies, but can never exceed your financial need.

After giving proof of your need for financial aid in paying for your college tuition, the Department of education will take care of the interest on your subsidized loan while you are enrolled in the institution. This happens on the condition that you are attending school for at least half-time. The department will also go on paying the interests on the loan for the initial six months after the student has left school and is in the so-called grace period. During repayment, at any given time in which you are required to defer your loans because of financial requirements, the Department of Education will also assist by paying the interest charged on your subsidized loan.

How do unsubsidized loans work?

The other type of Stafford loan given by the Department of Education is the unsubsidized loan. These loans are available to both graduate and undergraduate students, and you don’t have to demonstrate financial need to get them. Again, your institution determines how much you can borrow with regards to your cost of attendance and other financial assistance you may have received.

Do you have to pay back unsubsidized loans?

A key difference between unsubsidized and subsidized loans is that for unsubsidized loans, you are required to pay all the interest charged on the loans during the grace period, deferments, and all the other loan periods. If you opt not to pay the interest on any of the stated times, the amount will accumulate and added to the loan’s principal balance. This will, in turn, lead to a higher repayment amount throughout the life of your unsubsidized loan.

Other Basics and Difference between Subsidized and Unsubsidized Student Loans

For a student to be considered for any of the two types of loans, they must be enrolled in an accredited institution that takes part in the Direct Loan Program. They must also participate in a program leading to a certificate or degree awarded by the institution and not just take courses. It is also critical to remember that one must prove financial need to be eligible for a subsidized loan, which is only offered to undergraduate students. Unsubsidized loans, on the contrary, are available for both undergraduate and graduate program students and one doesn’t need to prove financial need to receive them.

First-time borrowers are given a limit in which they are eligible for these loans, also known as the maximum eligibility period. The period usually equals 150 percent of the time taken for your program. Therefore, if a degree program requires four years to complete, the student will be eligible for these loans for six years. On the other hand, students enrolled in a field of studies completed within two years; their maximum eligibility period will now be three years. If you choose to change or modify your course during your time in the institution, your eligibility period will also change depending on the published period.

How to qualify for subsidized student loans

Direct subsidized loans are the most affordable student loans. This is because the federal government helps take care of the interest charged while you are in the institution at least half-time, grace period, and during instances of authorized deferment. Under this program, you will enjoy a fixed interest of 4.45 percent for the period 2017-2018. A borrower’s eligibility is usually based on a proven financial need and comes with an array of repayment plans. Notably, this program is only for undergraduate students who have confirmed their financial need. Professional school and graduate students are currently ineligible for these loans.

Additional information on federal graduate student loans for students

Before you get student direct loans from the Direct Loans Programs, you will be required to file the FAFSA or carry out a renewal if you are a returning student. A financial aid award letter will then be sent to your email from the financial aid department of your school, summarizing the available financial assistance for you. You will then be required to contact the department to acknowledge the received student loan and financial aid. Interest rates on federal subsidized loans are fixed and do not change over the entire loan life. For instance, an interest rate of 4.45 percent was charged for the 2017-2018 period.

Your institution’s financial aid office can be significantly helpful in offering you personalized guidance. This is important in helping you choose the ideal way of acquiring student loans. Moreover, if you need to know where to pay government student loans, you can contact your service provider ASAP. You will get the right guidance on grants vs loans and the available options of reducing or pausing your payments to prevent you from falling behind.