Understanding Unsubsidized Loans
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.
