Talking Brass Tacks on Financial Aid: Subsidized vs. Unsubsidized Loans

If need-based aid coupled with merit aid is not enough to cover outstanding college expenses, education loans may be the only viable option to cover the remaining cost. There are three types of education loans: federal student loans, federal parent loans, and private student loans. A later post will have detailed explanations of parent PLUS federal loans and federal student loans. Student loans were the talk of the 2000s, laced with a bad connotation. Student loans do not have to be a life-long curse or a future cause of bankruptcy if the loans taken out by the student or parent are manageable. The key to analyzing if a loan is manageable or not is having a basic knowledge of what a student loan is and the terminology used to describe a loan. Student loans are special federal loans given to students pursuing a post-secondary degree, baring low interest rates and no credit expectations. There are two main terms to describe these loans: subsidized and unsubsidized. Subsidized loans are low-interest loans in which the federal government is responsible for paying interest until six months after a student’s graduation or they leave school. This means the student will not have any payments on the loan until after the six-month grace period, allowing for more financial flexibility in college. Unsubsidized loans are also low-interest loans, but interest on the borrowed amount must be paid while the student is in school. Subsidized federal loans are only available to students with financial need, while unsubsidized student loans, including parent PLUS loans (which are unlimited), are available to all students pursuing a post secondary degree. The current maximum on federal student loans is thirty-one thousand dollars, with twenty-three thousand dollars eligible to be taken as subsidized loans. Students who require more than thirty-one thousand dollars in loans can take further loans out from private firms, which will be discussed in a later post.

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