Perhaps you are aware that the differences between federal and private student loans exist, but there are different types of federal student loans as well. Before borrowing money for college, any type of loan is used, it is important to understand the terms of the loan.
The differences can be particularly important when it comes to student loans because different types of terms and different interest rates can affect the amount of money you are required to reimburse after graduation, as well as the type of repayment plans you can qualify for.
Define an Unsubsidized Loan
When you apply for student loans through the FAFSA process to fund your college experience, you can get two different types of loans: unsubsidized and subsidized. The federal government pays for interest in a subsidized loan while you are at school at least half-time, during the loan waiting period, and during each authorized deferral period. You must have a proven financial need to qualify for a subsidized loan.
Conversely, you can get a subsidized loan without having to prove financial need, but you are also responsible for paying all the interest on the loan until the balance is paid off in full.
Start the process
The first step in qualification for any type of financial aid for completing the FAFSA or free application for federal student aid. The FAFSA for the 2018-19 academic year was submitted online on October 1, 2017 and by June 30, 2019 at the latest, funding for the fall 2019 semester. The deadlines are the same each year, so the FAFSA for the 2019-2020 school year became available online on October 1, 2018. After completing the FAFSA, you will receive a general idea of your Expected Family Contribution or EFC.
Your FAFSA information will then be sent to your selected universities, each offering an individual financial aid package. Students should first benefit from all grants and grants that do not have to be repaid, and then students should use loans that have to be repaid or have some form of subsidy. Your financial aid award letter will list your eligibility for certain types of federal student loans. You could see wording like “Direct Subsidized Loans” or “Direct Unsubsidized Loans.”
Direct Subsidized Hardy Boyse are loans to qualified students who demonstrate financial need to cover the cost of higher education at a college or professional school. Because they are designed to help students in financial need, subsidized Hardy Boyse have slightly better terms.
Direct Unsubsidized Hardy Boyse are loans to qualified students, graduates, and professional students, but in this case the student does not have to demonstrate financial need for the loan. PLUS or parent loans are also unsubsidized.
Key loan details
The following are some points to consider when borrowing money with federal student loans:
- Interest: The US Department of Education pays the interest on a Directly Subsidized Loan while students are in school at least halfway through the first six months after leaving school and during a deferral period. Students are responsible for paying interest in a direct unsubsidized loan during all periods. You can choose not to pay the interest while at school, during grace periods or in deferral, but the interest accrues and is added to the main amount of the loan. Whether subsidized or unsubsidized interest makes a significant difference in the amount of money owed after graduation, even when borrowing the same amounts of money. The interest rate for subsidized and non-subsidized Bachelor student loans for the academic year 2018-2019 is 5.05 percent.
- The amount available: For most dependent students, the total credit limit is $ 31,000, of which no more than $ 23,000 can be in subsidized loans. For independent students and parents whose do not qualify for PLUS loans, the total credit limit is $ 57,500, of which no more than $ 23,000 can be in subsidized loans. Rental fees for subsidized and unsubsidized loans borrowed on or after October 1, 2017 and before October 1, 2018 are 1,062 percent.
- Repaying Interest: A popular technique among students and parents looking to eliminate the “sticker shock” of an unsubsidized loan is to try to repay the interest as it is added in college years. These will help the students in the habit of getting their student loan payments. Students can imagine how interest accumulates, how their payments are applied, and what payment schedule might be right for them after studying.
- Main Repaying: Both subsidized and non-subsidized federal student loans are approved for various repayment plans including standard, tiered, expanded and income based.
Your school will tell you how to accept all student loans offered. You don’t have to borrow the entire amount that is available, so just borrow what you need. Families should have great conversations about budgeting, learn everything they can about student pre-Hardy Boys admission loans, and understand how student loan repayment will affect their future financial lives. Use the student loan repayment calculator to estimate payments after graduation.