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Attending college or university is a dream for a ton of people. Yet higher education can be expensive, seemingly putting that dream out of reach for many students and families.
Tuition at American schools has steadily increased for decades, so it can be hard for your average student to afford it. But it’s not only tuition costs that you need to consider: fees, room and board, off-campus living, meal plans, textbooks, living essentials and other supplies all cost money.
Fortunately, there are many different types of financial aid available to help you meet the total costs of attending school.
Grants, scholarships and government programs can all be used to aid your pursuit of higher education. Student loans, including private and federal loans, are also commonly used to fund college. But taking on debt requires more financial planning than other types of aid.
If you’re ready to find the right loan for you and your unique financial situation, we’ve got you covered. We’ll go over everything and anything we think you need to know about subsidized student loans—the basics, how they’re different from unsubsidized loans and much more.
Having a plan for how you’ll pay for college is pretty important. That’s mostly because the tuition continues rise:
But as we mentioned, total costs include a lot more than tuition, and these other cost items have shown the same upward trend:
The growth in college costs has occurred rapidly, outpacing wagegrowth. This has made a degree unaffordable for many. That’s where student loans come in.
The biggest source of these loans is the federal government. According to Sallie Mae, more than 90% of student loan debt today is tied to federal student loans. While the government offers several loan types, often based on financial need, private lenders such as banks and credit unions also make student loans available.
To better understand your loan options, let’s explore the specifics of one of the government’s most popular offers: the subsidized student loan.
Officially, a subsidized loan is a type of federal loan offered through the U.S. Department of Education’s Direct Loan Program and referred to as a Direct Subsidized Loan. They are made exclusively to undergraduate students who demonstrate financial need and can be used to pay for college, university or a career school.
Subsidized loans work like most other student loans. They allow college goers to borrow money as they learn, paying the principal and interest back later. Most loans don’t require repayment while you attend school, and provide a grace period of six months after graduation for you to find a job.
The most notable feature of subsidized loans is that the government pays the interest while you attend school at least part time. This is a quality that’s pretty much unique to federal subsidized loans.
The government will also pay the interest during the grace period and during periods of loan deferment. You eventually assume responsibility for paying the interest, and principal, once you enter the repayment plan.
The bottom line for subsidized loans is they carry a lower lifetime cost, because the government pays interest while you’re at school.
Subsidized loans aren’t available to everyone, however. In addition to meeting basic requirements for getting a loan from the federal Direct Loan Program, applicants for subsidized loans must:
Anyone considering a subsidized loan must fill out and submit the Free Application for Federal Student Aid (FAFSA) form. This is how the government will establish whether you demonstrate financial need that is sufficient for taking out a subsidized loan.
There are two other main points to discuss about subsidized loans—loan limits and time limits. Ultimately, your school will decide how much you can borrow. But there are annual limits to what you can borrow through subsidized loans, as well as a maximum for the entirety of your college career.
Factors influencing what you can borrow include what year you are in school and whether you are a dependent or independent student.
Importantly, you can only receive subsidized loans for 150% of the published time of your degree program. That means if you attend a four-year bachelor’s program, you can only receive a subsidized loan for six years.
Unsubsidized loans are the other type of loan the government offers. While unsubsidized loans and subsidized have some similarities, unsubsidized loans have some major differences.
Interest rates for both subsidized and unsubsidized loans are controlled and set by Congress. This makes the interest rates for government student loans among the lowest you will be able to find.
While the federal government pays interest on subsidized loans, you’ll be solely responsible for paying interest on unsubsidized loans. You’ll have to pay interest while you’re in school and during the grace/deferment period. Here are some other key differences:
Interested in how private loans stack up to government loans? In a nutshell:
If you or your child is nearing college age, it’s time to start thinking about how you’ll pay for higher education. It’s a good idea to look into a few options, including student loans, scholarships, grants and other sources.
If you want to get started on applying for a subsidized loan, get started on your FAFSA form. And if you’re taking a closer look at private student loans, you can find help here.
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