As getting a college degree gets more expensive by the year, more and more students are relying on federal student loans to keep the dream alive.
However, all the language that is used to describe the different types of loans available to you can sound like coded jargon, yes ?
In this post, we are going create a dent in that cloud of confusion.
Today we’ll talk about the differences between the terms “Subsidized” and “Unsubsidized” when it comes to the Federal Direct Student Loan Program.
The William D. Ford Direct Loan Program is the largest loan program offered by the United States Department of Education.
The Subsidized and Unsubsidized loans are two of the four types of Direct Loans.
Subsidized Loans
Something important to note: if you received your first disbursement of a Subsidized Loan in the period beginning July 1 2012 to July 1 2014, you will be responsible for paying the interest that is accrued during the grace period. Also if you are a first-time borrower of this loan after July 1 2013, there is a limit on the maximum period of time that you can receive this loan type.
Unsubsidized Loans
Who Is Eligible For Direct Loans?
Something to note: Most males students need to be registered with the Selective Service in order to receive Federal Aid.
How Much Can You Borrow?
This is determined by your school but according to the Direct Loan Guidelines you can receive anywhere between $5000 up to a maximum of $20,500 per year depending on your class level.
If the amount your school determines is more than you actually need, you can also borrow less money - something that will come in handy if it is your goal to pay off your student loans faster.
When your loan is awarded, it will be sent directly to your school who will then apply the money to your school account to pay tuition and fees.
How Much Time Do You Have To Pay Off Your Direct Loans?
With the Unsubsidized loan, once you have graduated from school, you have a six-month “grace period” where you don’t necessarily have to make payments on your loan although you will have to pay any interest you accrued on the amount you borrowed.
In most cases, Subsidized loan borrowers will not have to worry about payments until the grace period is over.
Your repayment period begins a day after the grace period ends - this holds both for Subsidized and Unsubsidized loan borrowers.
Because you absolutely do not want to miss when your repayment begins, it is important that you communicate clearly with your loan servicer to get details the specific date your repayment period starts, how much you need to be paying and the methods of payments.
If for some reason, you are unable to pay the interest during the six-month grace period (under the Unsubsidized program) , the interest amount will be capitalized. This means that the interest amount will be added to the principal which can potentially increase the amount you have to pay each month.
Generally you will have between 10-25 years to pay off your student loans.
If you decide to consolidate your loans using the Direct Consolidation Program this time period is extended up to 30 years.
For both the Subsidized and Unsubsidized loans, you have the opportunity to use income-based repayment programs like PAYE and REPAYE.
Takeaways
We would love to hear your thoughts in the comments.
are there any personal finance management smart phone apps out there like Bill karma or money clarity that helps you manage and track student loans?
Student Loan Hero is the only app/website that tracks student loans somewhat well.