While some students have all the lines set up in pleasant places for them before they get set for higher education, not everyone has that same privilege. A lot of students have had to sponsor themselves through school. With the high cost of tuition and other niceties that need to be taken care of in order to have things a bit easier in school, most students have had to resort to taking student loans.
Student loans come in different forms, and they all serve different purposes. But if you are wondering which loan type requires you to make loan payments while you’re attending school, then you should be looking at unsubsidized federal loans.
What is an Unsubsidized Federal Loan?
An unsubsidized loan is a federal loan for undergraduates who are still in school and need help paying for tuition and other college expenses. Federal student loans, unlike private loans, are either subsidized or unsubsidized by the federal government.
Subsidized loans are available to undergraduate students only, and the government reserves them for students who demonstrate financial need. The U.S. Department of Education offers the best terms on these loans, paying the interest while you’re attending school at least half time, during the six-month grace period after leaving school, and during any loan deferment periods.
Unsubsidized loans, on the other hand, can be obtained by both undergraduate and graduate students and don’t require demonstration of financial need. Interest accrues on unsubsidized loans while you are attending school, during the grace period and during deferment.
If you do not pay the accrued interest before you start paying back the loan, that interest gets added to the loan’s total. With unsubsidized loans, students accumulate interest and are responsible for paying it all off, the interest will keep adding until the loan is paid off. These loans are on the low-cost, fixed rate side of the loan spectrum.
Unsubsidized federal loan is available for graduate courses and undergraduate courses. The student does not require providing proof of financial need to access the loan. The limit of the loan is determined by the school. The interest starts accruing when the student enrolls in the program, or the loan is disbursed to the student.
The borrower is liable for the payment of the interest during the school time in the following cases: The student is attending the school for the half time of the duration of the program; for the first six months after the graduation (grace period); during the period of deferment.
Therefore, unsubsidized loan payments require loan payment while attending school. With this, students can borrow up to $7,500 per school year. However, the precise amount of loan depends on the status of the student’s dependency and year in school.
Although unsubsidized student loans do not offer similar benefits as the subsidized student loan, it can still be a good option for many students. In the case of subsidized student loans, the government pays the interest on the loan while the student is still in school.
Students who do not meet the qualifications for a subsidized loan can opt for unsubsidized student loans. As the criteria for getting unsubsidized student loans are very flexible, a student can still qualify for an unsubsidized student loan even if his/her family’s annual income is too high to qualify for a subsidized loan.
What are the Interest Rates and Fees for an Unsubsidized Loan?
For undergraduate students, the interest rate on unsubsidized loans is 4.53% (the same as subsidized loans). But for graduate students, the interest rate increases to 6.08%. So it will best for you to pay off as fast as you can.
All students must pay a 1.059% loan fee each time they take out a new unsubsidized student loan. The loan fee is deducted from your loan disbursement, which means that your total amount borrowed will be higher than the actual money you received during school.
The Application Process for a Federal Student Loan
If you want to apply for a federal student unsubsidized loan, you have to start by filling out and submitting the Free Application for Federal Student Aid (FAFSA). You must submit the FAFSA to be eligible for a federal student loan. To submit the FAFSA for federal student loans (and for all types of federal financial aid), there are a few things to keep in mind:
- Remember that there’s no cost for submitting it. (If you’re asked to pay, you’re not at the right website.)
- Complete the FAFSA every year you need money for college.
- Get it done as soon after October 1 as possible. The earlier, the better, since some grant money is awarded on a first-come, first-served basis.
- You’ll find out about how much you’re eligible for in federal student loans when you receive your financial aid offer.
How to Accept your Federal or Private Student Loan
Once you have been given a loan, it now behooves on you to accept it. The only way you can accept your federal student loans is by signing and returning your financial aid offer. You may be asked to take part in entrance counseling at your school to make sure that you understand your loan obligations.
Plus, you’ll sign a Master Promissory Note (MPN) to agree to the loan’s terms. You accept your private student loans after you’ve been approved. Here’s the process:
- You need to choose the type of interest rate and repayment option for your loan.
- You or your cosigner will accept the terms of your loan and sign it electronically.
- Your school will be asked to certify your eligibility, including verifying your enrollment and the loan amount you’ve requested.
Both federal and private student loans are legal agreements. When you agree to a loan and sign or e-sign for it, you’re committed to paying it back, along with interest.
How to Repay Your federal and State Student Loan
When it comes to repaying your federal student loan, you have to wait for the mandatory six-month grace period. After that, you will now have to start making repayments of your principal and interest.
Student borrowers are not required to begin making payments on their Federal Direct loans until after they drop below half-time attendance. Following graduation, withdrawal, or less than half-time enrollment, borrowers are provided a six-month grace period on Federal Direct Stafford loans and a nine-month grace period on Federal Perkins Loan.
The repayment period for a Direct PLUS Loan begins at the time the PLUS loan is fully disbursed, and the first payment is due within 60 days after the final disbursement. Interest that accrues during these periods will be capitalized if not paid by the borrower during the deferment.
To be eligible for the extended plan, borrowers must have more than $30,000 in Direct Loan debt and must not have had an outstanding balance on a Direct Loan. Under the extended plan borrowers have 25 years for repayment and two payment options: fixed or graduated.
Fixed payments are the same amount each month, while graduated payments start low and increase every two years. This is a good plan if borrowers need to make smaller monthly payments.
Because the repayment period will be 25 years, borrowers’ monthly payments will be less than with the standard plan. However, borrowers may pay more in interest because they’re taking longer to repay the loans. Remember that the longer loans are in repayment, the more interest will be paid.