Find Funding for College 12: Subsidized & Unsubsidized Loans

This continues our series about paying for college with someone else’s money

You can apply for loans through the federal student loan programs, or loans through private institutions. Yet, more students take out loans than ever before. Many students will still pay for student loans when they are 40 and 50 years-old. When you think about taking out a loan, remember this saying “Those who understand interest, earn it. Those who do not understand interest, pay it.” Buyer beware!

Student Loans

The federal student aid web site provides information about student loans:

• Federal Perkins Loan for undergraduate and graduate students with “exceptional financial need”. The school acts as the lender. ($5,500 for undergraduate and $8,000 for graduate students)
• William D. Ford Federal Direct Subsidized Loan Program “is the largest federal student loan program. The U.S. Department of Education is your lender. There are four types of Direct Loans available:
  • Direct Subsidized Loan “for undergraduate students who demonstrate financial need to help cover costs at a college or career school. ($3,500-$5,500 a year depending on the school).
  • Direct Unsubsidized Loan “for undergraduate, graduate, and professional students that do not have to demonstrate financial need.” ($5,500-$20,500)
  • Direct PLUS Loan “are loans made to graduate or professional students and parents of dependent undergraduate students to help pay for education expenses not covered by other financial aid.”

Subsidized Loans

The U.S. Department of Education pays the interest for a subsidized loan,

○     while you’re in school at least half-time,
○     for the first six months after you leave school (referred to as a grace period*), and
○     during a period of deferment (a postponement of loan payments).

Unsubsidized Loans

You are responsible for paying the interest during all periods for an unsubsidized loan, . 

• Your interest will accumulate and be added to the principal amount of your loan if you do not pay the interest while you are in school, during grace periods, and deferment periods.
• All student loans for graduate students became unsubsidized as of July 1, 2012

Monday we will explore finding funding from parents and tax-deferred education funds