What is an Unsubsidized loan?
This is also a loan which must be repaid. And, because it is unsubsidized, you the borrower are responsible for the interest during the life of the loan. Federal Stafford Loans are the most common source of education loan funds, and are available to both graduate and undergraduate students. There are two types, Federal Subsidized and Federal Unsubsidized.
Unsubsidized loans are student loans that make it possible for students to finance an education while attending a college or university. Students can choose to make interest payments while still in school or capitalize the interest and making payments after they have finished their education. As a rule, interest on an unsubsidized loan begins to accrue as soon as the loan amount is disbursed. It is possible to obtain an unsubsidized loan from a number of different financial institutions. The student usually has to meet some type of criteria in order to command the best interest rate. However, even students who are considered to be high risk due to the financial condition of the family can usually obtain an unsubsidized loan carrying a higher rate of interest. An unsubsidized loan does not provide some of the advantages of a subsidized loan. With subsidized loans, the interest is covered by the federal government prior to the commencement of repaying the loan balance. This arrangement m
The difference between the two loans has to do with how the interest is accumulated. The Subsidized loan does not charge you interest while you are enrolled at least half time. The federal government pays it for you. However, the Unsubsidized loan does charge you interest while you are enrolled; interest begins to accrue as soon as funds are disbursed. You will be billed for the unsubsidized interest quarterly. If you do not make the interest payments, the interest amounts will be added to the principal amount of your loan. Your loan has a variable interest rate that will not exceed 8.25%.
If the student’s financial need limits his/her eligibility for the full grade-level maximum in the Federal Direct Subsidized Loan, he/she may borrow the remainder in the Federal Direct Unsubsidized Loan. This loan has a fixed interest rate of 6.8%, with the origination fee being the same as the subsidized loan. Interest begins to accrue the first day of disbursement, with the option for payments to be made quarterly or deferred until six months after the student ceases to be enrolled at least half-time. Direct Loans will contact the student to establish how he/she plans to pay the interest. If he/she defers the interest, it will be capitalized on the loan principal at the time repayment begins, which is six months after the student ceases to be enrolled at least half-time. How much is the student eligible to borrow? The student may qualify to borrow in one or both programs based upon his/her demonstrated “financial need” and the maximum loan limit per grade level.
An unsubsidized loan is non-need based (not dependent on the student’s financial need). The amount received cannot be more than the difference between the educational costs of attending school and other financial aid received, such as other loans, scholarships, or grants. In other words, the money the student receives for this loan is given directly to the college or university in which he/she is enrolled to pay for school expenses. Interest on an unsubsidized loan must be paid either while the student is in school at least half-time, or, if the student chooses not to pay the interest while in school, it will accumulate and be added to the principal (the amount of money the student takes out as a loan, not including the interest). A student must begin repaying the principal on an unsubsidized loan 6 months after graduation, once he/she has withdrawn from school, or if/when the student is enrolled less than half-time. Repayment is usually based on a 10-year repayment plan, but repayment
