Do you have unsubsidized student loans, or are you planning on applying for one? Well, you are on the right resource. By the end of reading this free resource, you will know all there is to know about unsubsidized Stafford loans.
Below is a rundown of what we will be exploring about this form of student loan.
- What are unsubsidized student loans?
- How do unsubsidized student loans work?
- How to calculate these loans
- What are the eligibility criteria for these loans?
- How to apply for unsubsidized student loans?
- Other Frequently Asked Questions about these loans.
What are unsubsidized student loans?
Unsubsidized student loans are loans that accrue interest from the first day of disbursement. These loans are offered to undergraduate and graduate students who don’t need to prove any financial needs when applying.
Although you only need to start your loan repayment six months after finishing college, the interest builds up or accrues during your college years. So at the end of the six months after you leave college, you must start making payments to avoid going into default.
Unlike subsidized student loans, the federal government does not take charge of paying the interest while you are still in school with unsubsidized Stafford loans. This makes unsubsidized student loans more expensive than subsidized student loans. So make sure you have exhausted your options for getting a subsidized loan before getting an unsubsidized loan.
How do unsubsidized student loans work, and how much can you borrow?
Unsubsidized student loans are available to everyone, provided you meet the general requirement. Although the interest accrues from day one after the loan disbursement, you can still defer payments until 6months after graduation or leaving school.
But you are still responsible for the interests that accrued during your college years. You can start making payments on the interest while still in school, but it is not obligatory.
With all federal student loans, you have to fill out the FAFSA form and submit it to the Federal Student Financial Aid Registrar or on the Federal Student Aid website. Once the Financial Student Aid office clears your form, your school will receive the first disbursement for your federal student loan.
Each semester, the financial Student Aid office will make available your requested amount for the semester to your school. This amount will cover your tuition, accommodation, books, and other school-related expenses.
If you are an independent undergraduate student, you can receive up to $9,500 for your first year, $10,500 for your second year, and $12,500 for the third year. Independent Graduate students could receive up to $20,500 each academic year. The total limit independent students can receive is $57,500 for undergraduates and $138,500 for graduates.
As a dependent undergraduate student, you can receive up to $5,500 for the first year, $6,500 for the second year, and $7,500 for the third year. Dependent graduates get $20,500 per year.
How to calculate unsubsidized student loans.
Before taking out unsubsidized student loans, you should be familiar with how the interest accrues. You also have to know how much you will owe after each academic year. So let’s use the examples below;
You take unsubsidized student loans for your four years college program. These loans have a fixed interest rate of 4.35%. For the sake of simplicity, let’s assume you borrow $8000 every academic year. So let’s do the calculation and see how much you will owe in four years after graduation.
Since we will be using a formula with some variables, below are the values of each variable;
A = Total amount you will owe per academic year.
P = The principal amount you borrow.
r = Interest Rate divided by 100 to get a decimal number (4.35/100 = 0.0435).
t = The amount of time you are borrowing the money for.
The formula is A = P(1 + r)t
So let’s start calculating;
Freshman(First Year):
P = $8000, r = 0.0435, t = 4 years
To find out how much you will owe we will use the calculation below:
A = 8000(1+0.0435)4
A = 8000(1.0435)4
A = 8000*1.1857
A = 9485.6
Freshman year = $9485.6
Sophomore(Second Year):
P = $8000, r = 0.0435, t = 3 years
A = 8000(1+0.0435)3
A = 8000(1.0435)3
A = 8000*1.1363
A = 9090.4
Sophomore year = $9090.4
Junior(Third Year):
P = $8000, r = 0.0435, t = 2 years
A = 8000(1+0.0435)2
A = 8000(1.0435)2
A = 8000*1.0889
A = 8711.2
Junior year = $8711.2
Senior(Fourth Year):
P = $8000, r = 0.0435, t = 1 year
A = 8000(1+0.0435)1
A = 8000(1.0435)1
A = 8000*1.0435
A = 8348
Senior year = $8348
To get the total amount you will owe after graduation, simply add the yearly amount you owe. So we use;
Total = $9485.6 + $9090.4 + $8711.2 + $8348
Total = $35,635.2
What are the eligibility criteria for these loans?
Although unsubsidized Stafford loans are easy to get, there are specific requirements you still need to fulfill to get these loans. If you meet the requirements listed below, the Federal Student Aid office will disburse your loan amount to your school after completing the application.
- You are either a US citizen or a Permanent Resident.
- Be enrolled at least half-time at a school that participates in the Direct Student Loan Program.
- You are an undergraduate, graduate, or professional student.
- To continue getting these loans, you must maintain satisfactory academic progress as defined by your school.
How to apply for unsubsidized student loans?
Before filling out the FAFSA form, you should make sure you meet the above requirements. Your application won’t be successful if you are not eligible.
To apply for an unsubsidized student loan is pretty more uncomplicated than you think. Since you do not need to demonstrate any financial needs to qualify, you only have to fill out the FAFSA form. You should submit this form as soon as 2nd October to stand a chance to get the funds you need.
If you are ready to apply for unsubsidized Stafford loans, you can start the process online on the Federal Student Aid application page.
Other Frequently Asked Questions about these loans
Who pays the interest on an unsubsidized student loan?
Unlike subsidized loans, where the government is responsible for paying the interest while you are still in school, you are responsible for paying the interest with unsubsidized loans.
How long do you have to pay off unsubsidized student loans?
Depending on the repayment plan you choose, you will have between 10 to 25 years to repay your loan. To learn more about repayment plans, visit this free resource from the Federal Student Aid website.
Why are unsubsidized student loans bad?
Many consider unsubsidized student loans bad because of the accruing interest on the loan while you are still in school. At the end of graduation, you will owe more than what you borrowed. You should only take out unsubsidized Stafford loans if you are not eligible for subsidized loans.
Bottom-Line:
Now that you have a good understanding of unsubsidized student loans, you can make an informed decision whether or not you should apply for one.
If you are interested in knowing how these loans differ from subsidized loans, you should check this free resource on Subsidized Vs. Unsubsidized Federal Student Loans.
