More Studnets Qualify for Unsubsidized Student Loans
Popular Financial Aid
It is easiest to explain what unsubsidized loans are if we first give a definition of subsidized loans. Subsidized loans are available to low-income students. What’s so special about these loans? The federal government pays the interest on these loans while recipients are in school and up through the initial 6-month grace period.
Unsubsidized loan terms dictate that you begin repaying the interest immediately even if you are in school. How do many students get around this? They defer the loan interest; it is capitalized as part of the balance and you then pick up payments following your six-month, post-graduation grace period.
The unsubsidized Stafford Loans are hands down the most popular student loans in the U.S.
But guess what? Most types of student loans fall into the definition of unsubsidized: Perkins Loans, PLUS Loans for parents and graduates, and even private and alternative student loans are included in this category. The interest on these loans is the responsibility of the borrower.
Applying for Unsubsidized Loans
You must fill out the Free Application for Federal Student Aid (FAFSA) in order to qualify for any type of government student loan. Period. The FAFSA is a 5-page long tedious application form that no one enjoys completing. But if you fail to file one you summarily eliminate yourself from almost every form of financial aid, including many kinds of scholarships and grants. The only student loans left open to you are the private student loans: typically high cost and high interest.
Almost 8 million students fail to file a FAFSA each year! Studies show that 6 million of those students would qualify for federal aid and almost 2 million of those low-income and eligible for Pell Grants, free government money they would not be required to repay. Why do they fail to file? Various reasons, including procrastination, pride, and general miscalculation of real college costs. 1 Don’t be one of them, file the FAFSA and get your fair share of the federal unsubsidized loans available to you.
Private loans are unsubsidized. Here’s how you apply:
Private student loans theoretically fall into the unsubsidized category since you, as borrower, are responsible for the interest payments. Apply for private loans through student loan lenders or private banks. A word of caution: always get the most money you can from federal loans before even considering a private loan.
Appealing Interest Rates for Unsubsidized Federal Loans
The beauty of unsubsidized federal loans is the interest rates. In contrast to private student loans your federal loans feature appealing interest rates. The Stafford and Perkins Loans especially feature excellent rates you should not miss taking advantage of:
- Stafford Loan interest rates were cut with the signing into law of the College Cost Reduction Act of 2007. By 2012 the Stafford Loan interest rates will be cut from 6.8 % to 3.4%.
- Perkins Loan interest rates are a low 5%.
Repaying Unsubsidized Student Loans
Remember the key difference between subsidized and unsubsidized student loans is the initial repayment of interest. Your unsubsidized Stafford Loans offer you a six-month grace period following graduation. You have four different loan repayment options that provide you ultimate flexibility when financing your loans:
- Standard- fixed monthly payments for 10 years.
- Extended-standard or graduated monthly payments for up to 25 years.
- Graduated-payments begin small and get bigger.
- Income Sensitive-your monthly payments are relative to your income level.
What happens when you have problems making your monthly payments, make them consistently late and even miss a few? In situations like these you risk loan default, a dangerous financial situation.
A solution:
Federal student consolidation loans package your debt into one low monthly payment that is designed to be manageable and affordable. When all is said and done you really pay more for your education, but you also avoid wrecking your credit and financial future.
Subsidized or unsubsidized? Chances are you will have both.
1 “Missed Opportunities: Students Who Do Not Apply for Financial Aid,” ACE, October 2004, accessed October 15, 2007, http://www.cherrycommission.org/docs/Resources/Participation/Student_FinancialAidArticle.pdf.
