How Much You Can Borrow
The actual loan amount you can expect to receive each academic year is determined by the school youre attending, and is subject to both annual and aggregate limits, where:
- Annual limits how much a student can borrow each academic year
- Aggregate limits how much students can borrow through the loan program
What is the exact amount of a federal direct unsubsidized loan would depend on what academic year you are, and whether youre an independent or dependent student? The amount of money you receive may be less than the annual loan limit.
The following table will show you the annual and aggregate limits for both kinds of federal loans :
|Subsidized vs Unsubsidized Loans Aggregate Limit||$31,000, no more than $23,000 of which may be in subsidized loans||$57,500 for undergraduates, no more than $23,000 of which may be in subsidized loans
$138,000 for graduate and professional students, no more than $65,500 of which may be in subsidized loans
|DID YOU KNOW: What is a federal direct unsubsidized loan fee? Its an amount taken from each loan disbursement, leaving you with a smaller amount of unsubsidized loan than the total borrowed. The current fee percentage on Direct loans is 1.057% .|
What Is The Point Of Fafsa
What is the point of a FAFSA? The U.S. Department of Education uses the FAFSA application to determine a student’s eligibility for need-based federal financial aid for college based upon their financial situation. Federal financial aid may include federal grants, scholarships, work-study, and/or loans.
Eligibility For Unsubsidized Student Loans
Eligibility for an unsubsidized student loan does not depend on financial need. More students will qualify for an unsubsidized student loan than for a subsidized student loan. Everybody, including wealthy students, may qualify for an unsubsidized student loan.
The borrower must be enrolled at least half-time as a regular student in a degree or certificate program at a college or university that is eligible for federal student aid. Some private student loans will lend to continuing education students who are enrolled less than half-time. For federal student loans and most private student loans, repayment begins six months after the borrower graduates or drops below half-time enrollment.
Eligible students must have a high school diploma, GED or the equivalent.
For federal student loans, the student must be a U.S. citizen or permanent resident. Some private student loans will lend to international students, if the borrower has a creditworthy cosigner who is a U.S. citizen or permanent resident.
The student must be in good academic standing with at least a 2.0 grade point average on a 4.0 scale and making progress toward a degree that is consistent with graduating within 150% of the normal timeframe.
The borrower must not be in default on a previous student loan.
Most private student loans will require a credit check and a creditworthy cosigner.
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Subsidized Vs Unsubsidized Loans
Both subsidized and unsubsidized loans are federal student loans designed to help eligible students in covering their higher education expenses. Many people also refer to these student loans as Stafford Loans, or Direct Stafford Loans.
Both types of loans offer students various benefits, some of them being:
- Flexible repayment options
- The option to consolidate loans
- Forbearance and deferment programs
However, there are some key differences between subsidized and unsubsidized loans, the main one being that only students with financial needs are eligible for subsidized loans.
But do subsidized loans have interest? Whats unique about these loans is that they dont accrue interest while youre in school, and the amount you need to refinance is only the amount you borrowed.
Unsubsidized loans, on the other hand, dont require students to demonstrate financial need or present their credit score, but do accumulate interest from the time of disbursement until the loan is paid in full.
|DID YOU KNOW: Managing your student loan repayment is never a simple task, as depending on your situation, the interest rate of your direct unsubsidized loan could be very high. If you have a good credit score and a stable income, you should consider student loan refinancing and benefit from the lower interest rate.|
Direct Subsidized/unsubsidized Loan Proration
Federal regulations require schools to prorate the Direct Loan amounts for graduating undergraduate students when their final period of enrollment is less than a full academic year . The loan limit proration determines the maximum loan amount that a student may borrow for the final term of study based on the degree they are earning.
Graduating undergraduate students who are only attending one semester of the academic year will have their Direct Loans prorated based on the number of credit hours they are enrolled.
Note: Graduate and professional students are excluded from the loan proration requirement
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Take Out Federal Student Loans
If you need to borrow for school, its usually best to rely on federal student loans first. This is mainly because youll have access to federal student loan benefits such as income-driven repayment plans and student loan forgiveness programs.
Once you complete the FAFSA, your school will send you a financial aid award letter detailing the federal student loans, federal financial aid, and school-based scholarships you qualify for. You can then choose which aid youd like to accept. Heres an example of how an award letter might look:
How Interest Works On Student Loans
Student loans vary from traditional, private sector loans like mortgage loans and auto loans in several ways.
For starters, you start repaying mortgage and auto loans within a month or two. Not so for student loans. With a college loan, you don’t start paying it back until after six months after your graduate.
Additionally, if you run into financial difficulties with a student loan, you can put the brakes on, and ask for forbearance, which allows you to suspend payments until you’re ready to start making payments again. While that is possible in rare circumstances with auto or mortgage loans, in general, you need to keep paying your non-student loans – no matter what.
Interest-wise, student loans can be complicated, and it’s up to student borrowers and their parents to know the ropes.
Basically, your interest terms are laid out in your student loan promissory notes, issued to the borrower along with the student loan disbursement.
When you get that note, read it carefully, and focus on these important contract items:
So, the earlier you start repaying your student loan, the lower our ultimate student loan costs.
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Alternatives To Direct Unsubsidized Loans
All college students qualify for Direct Unsubsidized Loans, regardless of their financial situation. If these loans will not cover all of your college expenses for the year, you do have other options to consider. You may, for example, be able to borrow private student loans, though these will typically be more expensive.
The parents of dependent undergraduate students may qualify to borrow Direct Parent PLUS Loans to cover any gaps that still exist. Additionally, graduate students for whom Direct Unsubsidized Loans do not cover all of their college expenses may qualify to borrow Direct Graduate PLUS Loans.
What Does It Mean To Take Out A Loan
The decision to take out a loan is a very personal one, but you should know there’s nothing inherently bad about being in student debt. Here, I’ll address the logistics of taking on student debt. I hope that with this information, you’ll be able to make educated decisions about taking out loans. .
The way that loans work is pretty standard, no matter where you’re getting the loan from. You borrow a sum of money, or principal, from some lender – usually a bank . You also agree to particular loan terms, including interest rates and length of repayment.
When you make loan payments, which usually happens on a monthly basis, you pay back a portion of the principal plus extra money: the interest, or a percentage of the principal that’s accrued . The longer you take to pay back the loan, the more interest accrues. The bigger your principal, the more interest accrues.
You can think about interest as a charge or a fee that you pay to your lender. Interest is how lenders make money on loans. It usually starts accruing as soon as the loan is disbursed (when the money is given out, or provided to you.
Sometimes, the interest that has accrued on your loan is added to your principle. When new interest accrues, it will be on this new, larger principle. This is called capitalization – when this happens, you start paying interest on more than your original loan amount, which means more interest.
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Do I Have To Accept Both Subsidized And Unsubsidized Loans
It’s important to know that you’re under no obligation to accept all the federal student loan money made available to you. You can accept all, some or none of the federal student loans you’re offered. Your award letter may also include scholarships or grants, which is genuinely free money you never have to pay back.
Is Subsidized Or Unsubsidized Better
Asked by: Arch Baumbach
Subsidized loans offer many benefits if you qualify for them. While these loans are not “better” than unsubsidized loans, they offer borrowers a lower interest rate than unsubsidized loans. The government pays the interest on them while a student is in school and during the six-month grace period after graduation.
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Private Student Loans: When Federal Funding Isnt Enough
Its possible that scholarships, grants, and federal student loans might not be enough to fully pay for your education. In this case, a private student loan could be a helpful option to cover any remaining expenses.
But before you apply for a private student loan, its important to understand how they differ from federal student loans. Here are some of the key points to keep in mind as you weigh your options:
Tip: If you have poor or no credit and are struggling to get approved for a private student loan, consider applying with a creditworthy cosigner to improve your chances. Even if you dont need a cosigner to qualify, having one could get you a lower interest rate than youd get on your own.
A cosigner can be anyone with good credit such as a parent, another relative, or a trusted friend who is willing to share responsibility for the loan. Just keep in mind that theyll be on the hook if you cant make your payments.
If a private student loan seems like a good fit for your needs, be sure to consider as many lenders as possible to find the right loan for you. Credible makes this easy you can compare your prequalified rates from our partner lenders in the table below in two minutes.
To Apply For A Federal Direct Unsubsidized Loan
To apply for a Federal Direct Unsubsidized Loan, the student must complete the FAFSA. If the student is eligible for a Federal Direct Unsubsidized Loan, the award amount will be posted on the students electronic Award Letter on SalukiNet.
A student is eligible to be considered for the Federal Direct Unsubsidized Stafford Loan if they:
- have a valid EFC on file in the Financial Aid Office.
- are enrolled in an eligible program on at least a half-time basis.
- have been awarded all subsidized loan eligibility.
- are making satisfactory academic progress.
- have not already borrowed the maximum aggregate Federal Direct Stafford Loan amount.
- are not ineligible for other reasons.
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How To Apply For An Unsubsidized Student Loan
First, make sure you meet the following criteria to qualify for an unsubsidized student loan. You must:
- Be a U.S. citizen or national, or a permanent resident
- Be enrolled on at a least half-time basis at an accredited institution
- Have no loan defaults or owe a refund to any previous student loan or aid
- Stay in good academic standing
Here’s how to apply:
Unsubsidized Vs Subsidized Loans
If you have a subsidized loan, then the government will pay the loan interest under certain conditions, such as when the student is enrolled in school at least half time, during the grace period, and during deferment. Also, direct subsidized loans are based on need if you donât meet the financial eligibility requirements you will not be able to borrow this type of loan. Additionally, you must be enrolled in an undergraduate program to qualify for a subsidized loan graduate and professional students cannot apply.
Other than who pays the interest and the qualifications, unsubsidized and subsidized loans have similar features.
|None||Undergraduate only based on financial need|
Next weâll discuss the features of an unsubsidized loan, and how they compare to the subsidized loan.
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Subsidized Vs Unsubsidized Stafford Loans
Federal Stafford Loans are the cornerstone of many financial aid packages. While they always have to be paid back, they offer low interest rates, deferment of payment while enrolled in school, and flexible repayment plans once you graduate.
Stafford Loans are available in both subsidized and unsubsidized incarnations.
If youre wondering about the difference between subsidized and unsubsidized Stafford Loans, the table below should answer many of your questions.
As you can see, the main differences between subsidized and unsubsidized Stafford Loans are how the award is determined, how much a student can borrow, the interest rate, and whether or not the interest is paid by the government or the student while in school. While lower interest rates and subsidized interest payments are a great thing for those who qualify, in any subsidized vs unsubsidized Stafford Loans situation, every student will come out a winner.
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Completing Your Loan Requirements
If you have a Direct Subsidized or Unsubsidized Loan, you will be required to complete three Direct Loan Program requirements: sign a Master Promissory Note , complete entrance counseling, and complete exit counseling. Visit our Master Promissory Note page for details about completing your MPN.
Entrance & Exit Counseling
Entrance Counseling: If you are a first-time Direct Loan borrower at U-M, you must complete Direct Loan Entrance Counseling on the U.S. Department of Education’s StudentAid.gov website under the “Complete Counseling” link. This interactive counseling session and quiz helps students develop budgets for managing educational expenses and also understand their loan responsibilities. You must complete the counseling before your loan funds can be disbursed to you.
Exit Counseling: This is required for Direct Loan student borrowers who are graduating or dropping below half-time enrollment. This counseling session helps borrowers understand their rights and responsibilities in repayment and helps them choose a repayment plan. You must use your Department of Education FSA ID to access this counseling session. To complete the Exit Counseling session, go to the StudentAid.gov website. Click the “Complete Counseling” link and follow the link to “Exit Counseling” to begin.
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Step 1 Complete Entrance Counseling
Log In using student’s FSA ID .
Select Complete Entrance Counseling.
The interactive entrance counseling session helps you to understand your loan responsibilities and provides tools to develop a budget for managing educational expenses. Entrance counseling takes 20-30 minutes to complete and requires your FSA ID .
Why Is Student Loan Debt Bad
What Makes Student Debt âBad Debtâ Even if you are borrowing money for a good reason, such as to finance higher education, debt is ultimately still a financial burden. … Federal student loans often set lower interest rates for undergraduate, graduate, and professional students than for their parents.
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Current Unsubsidized Loan Interest Rates
If you receive a federal student loan, you will be required to repay that loan with interest. Interest rates are fixed for the life of the loan.
- For undergraduates, the current interest rate for direct unsubsidized loans is 3.73% .
- For graduate or professional students, the current interest rate for direct unsubsidized loans is 5.28% .
If the borrower does not pay the interest as it accrues, it is capitalized .
Loan Funds Are Credited To Your Account In This Order:
If any loan funds remain in your account, the credit balance will be refunded to you by check, cash, debit card, orelectronic funds transfer to your bank account. Remember, the refund must be used to pay for your direct andindirect education expenses, such as textbooks, supplies, and equipment.
Read our blog on financial aid disbursementfor more details.
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