Student Loans & Financial Aid info

Unsubsidized loans are student loans for your educational tuition where the government guarantees the loan but does not pay any of the interest you accrue while in college. The subsidized loan, however, does provide for these interest payments as long as you are in your program with certain requirements. Both loans are available in the Stafford Loan products, and are both guaranteed for payment by the government–if a student doesn’t make payments, the government covers it with the lender. The rates are more attractive for the borrower because of this, and there are also no fees associated with this loan. It’s also easier to be approved because the payment is guaranteed by Uncle Sam.

To understand the unsubsidized loan, let’s first go over the Stafford Loan basics. This loan is one of the most popular for students–it’s easy to get, easy to pay off, and you don’t even have to think about making repayments until you have been out of school for six months. If you have more than one Stafford Loan, you can consolidate them into one payment at the end of your school career. This gives you time to find employment after graduation, and also gives you the opportunity to make your payments simpler and easier. The interest rate is fixed at a low 6.8% and is deferred six months from the day you leave school or graduate.

Subsidized loans, however, also carry other restrictions. These loans are for independent students, and this status is more difficult to achieve than dependent status. The educational institution is the final judge on who is declared independent and who is determined to be a dependent student. This is important because, other than the subsidy, there are limits on how much you can borrow.

Independent students have these annual borrowing limits:

Freshmen: $7,500 total. Subsidized: $3,500
Sophomores: $8,500 total: Subsidized: $4,500
Juniors and higher: $10,500 total. Subsidized: $5,500

Dependent student loans have lower total annual loan limits:

Freshmen: $3,500
Sophomores: $4,500
Juniors and higher: $5,500

This is important to remember because the dependent student loans are much lower and they may have to take out additional loans from private lenders to cover the gap between what the loan provides and actual costs. Sometimes this happens simply because of unforeseen expenses, such as a computer that needs replaced or extra tutoring for a difficult class that was not anticipated.

Remember that unsubsidized loans are not supplemented by the government, only guaranteed, so the student is responsible for all accrued interest during the life of the loan. However, this interest is a low 6.8%, so the student should apply for a Stafford Loan regardless of status before applying for other private student loans.

The differences between the subsidized and unsubsidized loan can often make the difference between going to a certain school and not going–if your circumstances force you to do this, consider a low interest Alternative Loan Program (ALP) loan to cover the gap. You should not have to price shop your education.

Undergraduates who are looking for a great financial package often turn to the Stafford Loan for their solutions. There are good reasons for this: the loan is very flexible, offering both subsidized and unsubsidized packages, as well as the ability to consolidate student loans once the student has left school. This loan is easier to obtain because it’s guaranteed by the government, and lenders have the option of offering loans for below the standard rates.

Although the interest rate was once determined using the Treasury Bill index, it is now a fixed rate as of July 1, 2006. This rate is currently 6.8 percent, although there are ways lenders can lower that rate depending on how much of a cut they want to take of their margin. Generally, a fee of 4% is deducted from the loan disbursement, with part of this going to the government in the case of loans provided by private lenders (FFEL program). Part of it also goes to the agency that runs the FFEL program in the student’s state.

When Do I Pay Back the Loan?

You will have what is known as a grace period after you graduate or leave school, which will be six months long. During this time you will not have to repay your loan (nor will you be charged any interest on the unsubsidized loan), but you will receive information about the loan repayment and the due date of your first repayment. If you don’t get any information, you will need to check to see when this date will be–you will be held responsible even if you don’t get the information. Your payments will usually be payable monthly, and you should plan to keep them current.

If you have problems meeting your repayment requirements, you can get a forbearance or deferment depending on your circumstances. No payments will be required during this time, and interest is not charged on Direct Stafford Loans or the FFEL, but if you have an unsubsidized loan you will be charged interest during the deferment period. If your circumstances don’t permit the deferment, you may get a forbearance through your lender, but for a short and limited time.

How Much Can I Borrow?

Your Stafford Loan will have an annual limit, and is based on your particular circumstances. Here are the different loan categories and how they will affect your borrowing limits.

Dependent Undergraduates
-Up to $3,500 for the first year students. You must be enrolled in at least a full academic year program.
-Up to $4,500 for students who have completed a year of study, and are enrolled in a program that will be at least another academic year in length.
-$5,500 for those who have finished at least two years of study and the rest of the program is at least a year long.

Independent Undergraduates
-$7,500 for first year students enrolled in a program at least one year academic year long.
-$3,500 may be in loans that are subsidized.
-$8,500 for those who have finished a year of study and the program is at least another academic year long. $4,500 may be in subsidized loans.
-$10,500 for students who have completed two academic years. The rest of the program must be at least one academic year in length, and the limit for subsidized loans is $5,500.

If you are a graduate student who needs to find more money to pay expenses while you pursue your graduate degree,  the Graduate Plus Loan may be just the help you need.  This loan is a low interest loan and can be used to pay for the ongoing expenses of graduate school. The Graduate Plus Loan is meant to cover the broad costs of graduate school. These include books, tuition, and supplies of course, but also room and board, travel, and lab expanses.  You can borrow up to this amount minus the amount of other financial assistance.

Your eligibility will be determined by your credit rating and your credit history.  You may be eligible for a GradPlus Loan if you have a bad credit score as long as you don’t have a bad credit history.  If you have been late on a  debt, the time overdue cannot be more than 90 days. You must have no bankruptcies and no defaults  on any Title IV debt.

Interest is fixed 8.5 % on the Graduate Plus Loan (also called the GradPlus Loan).  No collateral will be required for this loan. As long as you are in school,  your GradPlus Loan can be deferred which means you do not have to begin repayment of the loan.

In order to apply the FAFSA or Free Financial Aid Application must be filled out and submitted. You will receive a Student Air Report or SAR 3-4 weeks after the application is filed.  It is important to file this early, just as you did while an undergraduate. Your school decides what your maximum eligibility will be. Most schools will strongly encourage you to borrow the maximum amount of Stafford Loans before you apply for a GradPlus Loan.

You must be a United States citizen or national, a permanent resident, or an eligible non-citizen. A permanent resident must have an I-151, I-551, or I-551C (Alien Registration Receipt Card). An eligible non-citizen must have an Arrival-Departure Record (I-94) from the INS which with one of these designations: refuge, asylum granted, indefinite parole and/or humanitarian parole, Cuban-Haitian Entrant – Status Pending,  or conditional entrant.

There are some clear advantages to a GradPlus Loan over a private loan.

The loan fees on a GradPlus loan are 4% ; the fees on private student loans can be as high as 11%.

Some loans can be consolidated with federal education loans like the Stafford and Perkins loans. The GradPlus can be consolidated with these loans; you will have only one payment to worry about after graduation. Private loans cannot be consolidated with federal education loans.

Consolidating loans can lower your monthly payment by as much as 50%.

As you can see there are clear financial obligations that will have to be met after you graduate.  Some fields of study require advanced degrees in order go attain the level of professional. These include some areas of medical training, law school, and counseling. Make sure before you chart your course to graduate school that you will have the financial resources to stay the course.

Students all go into their educational programs with the full intention of paying their student loans once they graduate. The government programs–and some private ones–make it easier for them by deferring loan repayment until six months after they leave school or graduate. However, sometimes this is not enough time, or other things happen that prevent the student from making payments then or later in the repayment cycle. When that happens, it’s time to look at deferments.

A deferment is where a lender will suspend payments or extend the grace period on a federal student loan. These deferments are considered according to the situation and circumstances surrounding the student’s difficulty, and on an individual basis. They also have time limits, and the student must meet certain conditions and criteria.

The deferments are usually granted for these circumstances:

 Graduate study
 At least half time enrollment in an educational program
 Lack of employment (with a 36 month limit)
 Financial hardships and difficulties (also with a 36 month limit)

In the case of the subsidized Stafford or Perkins Loans, your interest will be paid by the government during your period of deferment. If your loan was an unsubsidized Stafford loan, you will be responsible for covering the interest that accumulates during the deferment.

Often a deferment can be avoided by contacting the lending institution and making arrangements to pay the loan with lower payments. Often private student loans can be handled this way, but it’s up to the lender to determine if the offering is acceptable. In the case of the government loan, the student should contact the loan holder to discuss arrangements and to see if what he or she can pay is acceptable to the institution.

Any borrower who is considering a loan deferment should contact the loan holder. This way he or she can work directly with the agency and not have the confusion of a third person involved. If you wish to contact your loan holder and don’t know who it is, simply look in the National Student Loan Data System for the information.

If a deferment is not enough, you may have to consider a loan forgiveness program. This is a way of offering your service to the public in some form and having part of your loans paid or reduced by a percentage. If you are interested in loan forgiveness, you must meet criteria. You must also participate in one of the programs that repays and reduces your debt. This can be done through specific types of volunteer service, military service through the Army National Guard, teaching in certain low income schools, medical service in designated underserved communities (for medical school loans), and legal community and public service (for law school loans).

If you are interested in either a loan forgiveness program, contact your school’s financial aid office to see what work will qualify and through which agencies. Also make sure you know how much of your loan is covered and what you will be responsible for when you’re done with your service.

Visit our student loans index page to begin learning the basics of student financing in simple terms.