Saturday, December 15, 2007

What does unsubsidized mean?

The biggest and most important difference between a subsidized and an unsubsidized student loan is that the Federal Government does NOT pay for the interest that accrues on your unsubsidized loans. This type of loan is "non-need" based as calculated by the Free Application For Student Aid (FAFSA). Unsubsidized loans are often given to students who's parents make a moderate yearly income yet may have multiple children in college and therefore cannot pay the full price of tuition for their children.

The terms that have been negotiated with your provider will determine what will happen with the interest that will add up while you are in college. There are some cases where interest must be paid on a monthly basis beginning with the first disbursement of the loan. More commonly, the interest will be capitalized (added to the principle). This means that a 10,000 dollar loan at 6.8% interest over a 4 year period will actually cost the borrower $13,009.

Overall, the relatively low interest rate on these loans is far outweighed by the benefits of attaining a college diploma. The average yearly income of those with college degrees will more than cover the cost of these loan and the college experience is virtually priceless itself.

1 comment:

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