Unsubsidized Stafford Loan

stafford loansAccording to a report produced by the loan company Sallie Mae, students are no longer leaning on their parents when their bills for college begin to arrive. Instead, the loan company suggests, more students are utilizing all of the loan and scholarships open to them before they ask their parents to step in and pick up the tab. In 2012, the report suggests, the average student borrowed more than $8,000 from federal sources.

It’s possible that many of these students had dire financial circumstances that would allow them to qualify for some form of assistance from the U.S. Department of Education. For students like this, federal loans come with wonderful enticements that can reduce the overall cost of a college education.

But for those students who cannot demonstrate that they have an intense financial hardship that would keep them from paying for college, an Unsubsidized Stafford Loan (also known as a Direct Unsubsidized Loan) could be a good option.

Subsidized vs. Unsubsidized

There are two types of Stafford Loans available to students: subsidized and unsubsidized. The difference between the two loans concerns the interest that accrues as the student attends school.

For the U.S. Department of Education, the loan becomes active as soon as the student takes out the first dime to pay for school. That means that interest-related costs begin on that very first day. As a result, students who spend 4 or 5 years in school may have many years of interest payments backed up behind them when they graduate.

Students who have subsidized loans don’t have to worry about these payments, as the Department of Education covers the cost of the interest while the student is in school. But those students who have unsubsidized programs have a few options available.

Some students choose to begin making payments on the interest the loans accrue while they’re still in school. This allows them to graduate without a big bill, but it can mean that students have extra debt to worry about when they should be worrying about their studies. Other students choose to defer their payments, but this can allow that interest to accrue, and when the student graduates, that interest is added to the principal amount of the loan, which could translate into yet more costs down the line.

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