subsidized vs unsubsidized loan

For many parents and students just entering into college understanding the financing of college can be one of the complicated financial decisions your will make in your life time.  Understanding the differences between a subsidized vs unsubsidized loans can be confusing.  This determination may vary by school, based on your financial need at that specific college or university.

 For many middle income families when they received their financial aid award one school may have stated only Unsubsidized Stafford Loans while another may have had both a Subsidized and Unsubsidized Stafford Loans.  The reason for this difference is the specific financial need of that student at that school.  If the student‘s expected family contribution (EFC) is less than the cost of attendance at that school, you most likely qualified for a subsidized student loan.

 The definition of a subsidized loan is that the government will pay the interest on that loan while you are in school.  Once you stop going to school then the interest will start accruing and payment will need to begin.  The subsidized loan advantage can be restarted if you further your education with a post graduate degree.

 There are two major federal student loans that are subsidized.  They are the Subsidized Stafford Loan and the Perkins Loan.  Both of these loans have specific rules determined by the department of education which each college needs to follow.  The amount a student will get is based on a student’s financial need which is described above.  Both of these loans along with possible grant money could be part of a student’s need based financial award.  This is a result of the student and family completing the FAFSA form for that school year.

 There is a current debate going on in congress regarding the interest rate of the Subsidized Stafford Loan.  This is a relatively new issue.  Prior to July 1, 2008 there was no interest rate difference between the subsidized vs Unsubsidized Loan interest rate.  The only difference was the loan interest being accrued to the loan while in school.  Since July 1, 2008 there has been a growing difference between the two rates.  The rate difference has no impact while you are in school but does when you need to consolidate and begin to start your loan repayment.

 It is important to remember that these are federal loan programs and are the result of completing the FAFSA form.  No matter what your financial strength if you complete the FAFSA form the student will qualify for a Stafford Loan.  It needs to be done each year.  The other advantage of both the Subsidized and Unsubsidized loans is they are the legal responsibility of the student and not the parents.

For more information on student loans and the entire college funding process please visit www.CollegeAffordability.com .

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