What is the difference between a subsidized Stafford Loan and an unsubsidized Stafford Loan?
If you have a Subsidized Stafford Loan you are eligible to have your interest paid by the Federal government while you are enrolled at least half time (six credits).If you have a Unsubsidized Stafford Loan you are responsible for the interest that accrues while you are enrolled.You may either pay the interest or let the interest capitalize and pay after you graduate, withdraw, or drop below half-time (six credits).
After the FAFSA is processed, the school(s) that the student has chosen will receive the expected family contribution(EFC)figure from the U.S. Department of Education. It can then determine whether or not a student is eligible for a need-based Federal Subsidized Stafford loan. If the student does receive a federally subsidized loan, the government will pay the interest to the lender that accrues during the in-school, grace and authorized deferment periods on the borrower’s behalf. If the student is not eligible for a need-based loan, the school can then opt to certify a Federal Unsubsidized Stafford loan. In addition to the principal, the borrower will be responsible for paying all the interest that accrues over the life of an unsubsidized loan. However, if the student is unable to make quarterly interest payments while enrolled in school, he or she can direct the lender to add the accrued interest to the loan principal. This will make the balance that has to be repaid increase, so it
A subsidized loan is awarded on the basis of financial need. If you qualify for a subsidized loan, the federal government pays the interest on the loan (“subsidizes” the loan) as long as you remain enrolled on at least a half-time basis until repayment begins. The interest is subsidized as well during authorized periods of deferment. An unsubsidized loan is not awarded on the basis of financial need. If you qualify for an unsubsidized loan, interest will be charged from the time the loan is disbursed until it is repaid in full. You may choose to pay the interest while you are in school or allow it to accumulate. If you allow the interest to accumulate, it will be capitalized – that is, the interest will be added to the principal amount of the loan and will increase the amount that has to be repaid. If the interest is paid as it accumulates, you will have less to pay in the long run.
With a subsidized Stafford loan, the government pays interest on the loan until you graduate from college. To qualify for a subsidized Stafford loan, you must demonstrate financial need. An unsubsidized Stafford loan still offers you the same low interest rate as the subsidized version, but you have to pay the interest on the loan from the date of origination.
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