Understanding Subsidized and Unsubsidized Federal Student Loans!
College time is one of the most life-changing periods in a student’s career. We meet new people, make new friends, experience new things and see the world with a new outlook. For the first time in your life, you were the master of your decisions.
But after completing your degree and finally becoming a graduate, it’s time to make a career. And, also it’s time to pay off those student loans. You must understand the whole system behind Federal Student Loans.
Wells Fargo explains how a Federal Student Loan can be either subsidized or unsubsidized or both. Understanding them will help you know how your loan interest works, how much amount you pay and how you plan to handle your loan repayment. If you have some savings, then you can check out The 7 Best Short-Term Investment Plans For You!
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SUBSIDIZED STUDENT LOANS DECODED
A Subsidy is a grant or contribution of money; especially it can be a grant from the government.
A subsidized loan can then be explained as a loan that is partly supported and paid by the government. The Direct Subsidized Loans are made keeping in mind the low-income, undergraduate borrowers. Your government pays the interest on the loan while you are enlisted in school for half the time of the full tenure or if you enter suspension or deferment when it is time to pay back your student debt.
EXPLAINING UNSUBSIDIZED STUDENT LOANS
Unsubsidized Student Loans are also provided by the government but they do not offer any added financial support. As it is a general loan not based on financial necessities, the government will not pay any interest and the borrower has to take care of the full debt with interest.
COMMONALITIES BETWEEN SUBSIDISED AND UNSUBSIDIZED LOANS
Although there lays a huge difference between subsidized and unsubsidized loans, they still share a number of similarities:
Interest Rates assigned: As told by the U.S Department of Education, the current Annualized Percentage Rate of INTEREST or APR for undergraduate subsidized and unsubsidized loans in 4.45%. While the interest rate for the unsubsidized graduate degree is 6%.
The assigned duration of financial support: The government offers the longest eligibility period of 150% of the length of the college program you enrolled in. Meaning you will receive a six years’ worth of loans if you attend a complete four-year undergraduate course.
Understanding Subsidized and Unsubsidized Federal Student Loans As you submit your documents with the college, they will decide the amount you can borrow. The college then provides you with a financial aid package which contains details of how much you can borrow in subsidized or unsubsidized student loans.
Loan fees: Both subsidized and unsubsidized federal student loans have same loan fees of 1.069%, which is charged on the sum total.
PITCHING ONE AGAINST THE OTHER
Whether you choose subsidized student loan or unsubsidized student loan, it is up to you to decide. But you have to plan your repayment strategy and keep in mind the difference it makes if you let the interest accumulate while you attend college or you are let off until your graduation.
A subsidized student loan might seem a better choice if you qualify. As the government pays the interest while you attend college, you can try and save a bit of money.