As obtaining a college degree becomes more expensive by the year, more and more students are relying on federal student loans to keep the dream alive. And you can see listings for both subsidized and non-subsidized student loans when you receive your award letter.
However, all the language used to describe the different types of loans available to you may sound like coded jargon, yes?
In this post, we are going to make a dent in that cloud of confusion.
Today we’ll be talking about the difference between the terms “subsidized” and “unsubsidized student loans” 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. It’s basically the “law” that defines what can and cannot be done with student loans.
Subsidized and unsubsidized loans are two of the four types of Direct Loans. These are the most common types of loans that undergraduates will get. Let’s break down what they mean, what you need to know, and the options if you need to borrow more.
subsidized student loans
If you qualify for Federal Direct Subsidized Student Loans, you should definitely take advantage, as they are one of the best student loans you can get.
Direct Subsidized loans are available to graduate students who have demonstrated financial need. The amount you can borrow is determined by your school. The loan amount will not exceed your financial requirement. The US Department of Education will pay interest on your loan while you are in school at least half-time, during the first six months after you leave school (the grace period) and/or during the approved grace period.
unsubsidized student loans
Direct unsubsidised are available for undergraduate and graduate students. There is no requirement to demonstrate financial need. The school you attend will determine your loan amount based on your financial need and other types of financial aid you may be eligible for.
Unlike a subsidized program, you are responsible for paying interest on your loans for the entire time you are in school as a student and after you leave. (That’s why this particular loan is “non-subsidy”). Any unpaid interest will be added to the principal.
Who is eligible for Direct Loan?
There are several factors to be aware of when it comes to qualifying for a Direct Loan. There are also limits on how much you can borrow with Direct Student Loans.
To qualify for any federal student loan program, you must be a US citizen or permanent resident and have a valid Social Security number. -Time. If you are an undergraduate, you are eligible for both subsidized and unsubsidized loans. As a graduate student, you only qualify for unsubsidized loans. To continue receiving funding, you need to continue to show satisfactory academic progress. If you are eligible, you will proceed to fill out the Free Application for Federal Student Aid (FAFSA®).
Some things to note: Most male students are required to register with the Selective Service in order to receive federal aid.
How much can you borrow?
There are different loan limits depending on if you are a dependent student or an independent student. The limits also change depending on what year of school you are in.
You can also borrow less money if the amount your school sets is more than you actually need — something that will come in handy if you’re aiming to pay off your student loans faster.
When your loan is disbursed, it will be sent directly to your school, which will put the money into your school account to pay for tuition and fees.
Here are the current student loan borrowing limits:
$5,500 – not more than $3,500 subsidized
$9,500 – not more than $3,500 subsidized
second year graduation
$6,500 – not more than $4,500 subsidized
$10,500 – not more than $4,500 subsidized
Third Year Undergraduate and Beyond
$7,500 – not more than $5,500 subsidized
$12,500 – not more than $5,500 subsidized
professional and graduate
Note: All graduate and professional students are considered independent students. Also, graduate and professional students are not eligible for subsidized loans.
There is also a total loan limit that you must adhere to:
Dependent students: $31,000, with up to $23,000 in subsidies
Independent student: $57,500 for undergraduates, with up to $23,000 in subsidies
Professional and graduate students: $138,500 for professional and graduate students, no more than $65,500 subsidized. These loan limits cover the total loans taken during undergraduate studies.
How much time do you have to pay off your Direct Loan?
With unsubsidized student loans, once you graduate from school, you have a six-month “grace period” where you are not required to make payments on your loan, although you will be required to make payments on your amount. Any interest earned must be paid. Borrow.
In most cases, borrowers of subsidized student loans won’t have to worry about payments until the grace period ends.
Your repayment period begins the day after the grace period ends – this is for both subsidized and unsubsidised student loan borrowers.
Because you don’t want to miss exactly when your repayment starts, it’s important that you clearly communicate with your loan servicer the specific date your repayment period will start, how much you need to repay and the repayment schedule. Get details on methods.
If for any reason, you are unable to pay the interest during the grace period of six months (under the unsubsidised programme), the interest amount will be capitalised. This means that the interest amount will be added to the principal which can potentially increase the amount you pay every month.
You will typically have 10-25 years to pay off your student loans.
This time period is extended to 30 years if you decide to consolidate your debts using the Direct Consolidation program.
For both subsidized and unsubsidized loans, you have the opportunity to use income-based repayment programs such as PAYE and REPAYE.
What if you need to borrow more?
Many people look at those subsidized and non-subsidized student loan limits for undergraduates and don’t know how they will pay for college. And it’s a rational fear if you were planning on borrowing the entire cost of college. But remember, paying for college is a pie—and there are lots of different slices to choose from.
For a full breakdown of the “best” way to pay for college, see this article: The Best Ways to Pay for College.
If you have already exhausted other options, and know your ROI on education, you can consider private loans.
We recommend students to shop and compare personal loan options before opting for them. Credible is an excellent option because you can compare about 10 different lenders in 2 minutes and see which one you qualify for. See reliable here.
We also have a full comparison tool on the best private loans to pay for college here.
key takeaways
If you are an undergraduate, your best option between these two loans is the Direct Subsidized Loan.
If you can borrow less on your loan, do it. You’ll have less to pay later. After your loan is disbursed, the Department of Education will assign you a loan servicer.
Take advantage of income-based repayment programs available to you.
We’d love to hear your thoughts in the comments!
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