The Pros and Cons of Unsubsidized Federal Student Loans
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So
you have completed the FAFSA
and gotten back your results. Did you find unsubsidized
federal student loans listed as an option?
Both subsidized and unsubsidized loans are offered through
the Federal Direct, or the FFEL Stafford Loan programs,
which are administered through the federal government.
So, whether you've been offered any other kind of financial
aid or not, here's what you need to know before taking
out an unsubsidized student loan.
With an unsubsidized loan you start getting charged
the interest right from the time you receive your
first payment. You are not required to make any payments
while you are still in school. You will be given the
option though, of making voluntary payments toward the
interest during this time. It's a good idea to do that
if you can. The monthly amounts are relatively small,
and any interest you do not pay off will get added on
to the principle of the loan. That means the following
month you'll be charged interest on this month's interest.
This can build up quite a bit over time.
Being required to pay the interest is one of the major
drawbacks of unsubsidized loans. It is with subsidized
Stafford loans that the government covers the interest
for you while you are in school or your loans are in
deferment. So if you have a choice, choose the subsidized
money first.
The other down side is that they count against your
Stafford loan eligibility. The government sets limits
to the amount of Stafford loans a student can take out
each year, and over the course of their lifetime. More
specific information on Stafford loan limits can be
found at StudentAid.gov.
If you take out all the unsubsidized loans you are offered,
you may find that loan eligibility is not there for
you during the summer sessions or during your final
semesters when you need it.
On the other hand if you have not gotten any subsidized
loans, because you were told you had "no need" because
your parents make too much money or something, there's
still a good chance unsubsidized federal loans are the
best option for you.
Unsubsidized loans are more common than subsidized
because they are not need-based. That means that even
students who have a high amount of income reported on
their FAFSA can qualify.
The terms and conditions of both types, however, are
far more desirable than most any loan that you would
get outside of a federally regulated program.
| Pros |
Cons |
| 1. Awarded
not based upon need. |
1.
Counts against Stafford loan eligibility. |
| 2. Interest
is less than loans offered outside of the Stafford
loan program. |
2.
You are charged interest even while in school. |
| 3. An
option for paying for college if you have not
been offered any other loans. |
3. Not
paying interest while in school essentially means
you will pay interest upon interest later on.
This could add up. |
Being aware of the pros and cons of unsubsidized student
loans can save a lot of confusion, and a surprising
amount of money, throughout your college career.
Find out more about the differences between subsidized
and unsubsidized student loans
Author: Kevin Hodges worked as a college financial
aid counselor at a major university before moving on
to a freelance writing career.
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