What Is the Difference between Direct Subsidized and Unsubsidized Loans?

4/9/11 by Sadie DeWitt

Illustration courtesy of flickr

Stafford Loans are low-interest loans offered by the government that help you pay for your higher education. There are two types of Stafford loans available: direct subsidized and unsubsidized loans. Direct subsidized loans are federally guaranteed loans based on financial need. When you are studying at least half-time and during deferment periods, interest does not accrue on direct subsidized loans because the federal government pays the interest. Direct unsubsidized loans are not based on financial need, and interest accrues from the time the loan is disbursed.

The following are the maximum amounts you can receive per school year for direct subsidized and unsubsidized loans:

Direct Subsidized Loans

Photo courtesy of Jeff Sandquist via flickr

Freshmen: $3500 per year

Sophomores: $4500 per year

Juniors: $5500 per year

Seniors and 5th year students: $5500 per year

Direct Unsubsidized Loans

Freshmen: $5,500 per year for dependent students, $9,500 per year for independent students

Sophomores: $6,500 per year for dependent students, $10,500 per year for independent students

Juniors: $7,500 per year for dependent students, $12,500 per year for independent students

Seniors and 5th year students: $7,500 per year for dependent students, $12,500 per year for independent students

 

Pros and Cons of Direct Subsidized and Unsubsidized Loans

Both direct subsidized and unsubsidized loans have low, fixed interest rates, but direct subsidized loans are the best bargain because the federal government pays the interest while you’re in school and during deferment periods. The downside of direct subsidized loans is that they are only awarded on the basis of need. On the other hand, you don’t have to demonstrate financial need in order to qualify for unsubsidized loans. With unsubsidized loans, however, you’re required to pay interest during all periods, although you’re allowed to defer payments until after you graduate.

How to Apply

To apply for direct subsidized and unsubsidized loans, you have to complete a Free Application for Federal Student Aid (FAFSA). The FAFSA can be completed and submitted on the web. The schools you apply to will determine how much financial aid you are eligible to receive based on the information you supply on your FAFSA. You can’t borrow more than your cost of attendance minus any financial aid you receive.

Depending on your level of financial need, you may be eligible to borrow both subsidized and unsubsidized loans. For example, if you have educational expenses that can’t be met by a subsidized loan for up to the amount of the borrowing limit, you may be eligible to receive an additional, unsubsidized loan.

Getting Your Loan Money

You will be paid the loan money directly through your school. Your school will use the direct subsidized and unsubsidized loans to pay for tuition, fees, room, board, and other expenses. If there’s any loan money left over, you’ll receive the funds by check or other means. The money along with your tools for success will really help to ultimately jump-start your career.

Paying Your Direct Subsidized and Unsubsidized Loans Back

Following a six month grace period after you graduate, leave school, or drop below half-time enrollment, you will be required to pay back your direct subsidized and unsubsidized loans. During the grace period, you will be notified about your first payment due date and receive repayment information in the mail. You’ll have anywhere from 10 to 25 years to repay your loan, depending on which repayment plan you select. You can also choose to consolidate your direct federal loans, combining them into a single loan with a fixed interest rate.

Looking for Additional Loans, Scholarships, and Grants?

In addition to filing the FAFSA and finding out whether you qualify for direct subsidized and unsubsidized loans, check out this resource to find additional loans, Scholarshipsand Free Grantsthat will help you pay for school.

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