The Pros and Cons of a Subsidized and Unsubsidized Loan

Not everyone can pay the high college fees or the university fees that is why many people go for the student loans. There is a number of people that have got student loan to pay their college or university fee but if you are a student these are the 10 ways you can earn money in college. If you are the one that have taken a student loan or you want to take a student loan then there are a lot of things that you need to know. There are a number of different types of loans available and different loan schemes that you need to know. You need to know all of these so that you can make this debt your friend but not your enemy.

In each type of loan, interest is calculated differently, so it is better that you must know what kind of loan that you want to take. There are subsidized loans and unsubsidized loans that you can take and in both cases, you will see different financial situations. So today I will go through the pros and cons of these loans so that you can make a benefit out of this and so that this could let you save money.

 

Direct Subsidized Loan

A direct subsidized loan is a loan that is available to those students who are in need of financial help. In this case, the school in which the student is studying determines the maximum amount that should be borrowed by the student. The benefit of a direct subsidized loan is that the US Department of Education pays the interest on the behalf of the student but there are certain requirements that you need to fulfill before you can get that benefit.

In order to get the facilities of a direct subsidized loan, you must be a student that spends his half day in the school. The Department of Education will pay the interest up to the time period of 6 months after your time at school has finished. In this case, even if you drop out, the time period will start. Another benefit of this kind of loan is that, if you apply for a deferment and get approved, the Department of Education will pay the interest for that approved deferment period.
There is an exception for the grace period of 6 months in which the Department of Education pays the interest on your behalf and that is that if you have taken your loan in between 1st July 2012 and 1st July 2014 then you would have to pay the interest also in the grace period.

 

Ups and Downs of a Subsidized Loan

There are advantages and disadvantages of a subsidized loan that you must keep in your mind. One of the benefits of this is that you do not have to pay any interest payments while you are in school and the government pays it on your behalf. When you graduate or leave your school, you do not have any payments pending till the 6th month. The biggest benefit of this type of loans is that if you are in deferment period then your interest is paid by the government.
The downside of a subsidized loan is that you cannot get a higher amount in this case, you can only qualify for a subsidized loan if you have a low amount of loan and you can only get this loan if you are dependent. Another downside of a subsidized loan is that these loans are not for graduate students. Last but not the least, only those students who need financial help can get a direct subsidized loan.

 

Direct Unsubsidized Loan

An unsubsidized loan is a loan that an undergraduate or a graduate student can take without fulfilling any set of requirement. In this case, the school in which you are studying determines the amount of maximum money that you can take just like in the subsidized loans. Unlike the direct subsidized loan, you will have to pay all the interest in your school time and after the school time and if you are unable to pay the interest than that amount will be added in to the total amount you have borrowed.
So this is clear that these two types of loans has a lot of difference. The amount of money you will have to pay is much different in both the cases. The amount of money you can owe is also different as in this case you can owe a higher amount with no requirements but you will have also have to pay a higher amount in this case.

Unlike the subsidized loan, in which you can only qualify if you are dependent, you can qualify for an unsubsidized loan whether you are a dependent or an independent student. Other than that when you compare the highest limit of the amount of money that you can owe, it reveals that you can owe more money with an unsubsidized loan. As a dependent student, you can only take an unsubsidized loan of amount $31,000 and if you want to take a subsidized loan then the limit drops to $23,000. As an independent student, you can take a loan of maximum $57,000.
The maximum amount that you can owe also depends upon your degree as if you are a graduate, you can take a maximum of $138,500 in student loans and you cannot qualify for a subsidized loan as it is not offered to graduate students.

 

Ups and Downs of Unsubsidized Loans

As like the subsidized loan, unsubsidized loans also have their advantages and disadvantages that you need to keep in mind. So let’s talk about that,
One of the advantage of having an unsubsidized loan is that we can take a much higher amount of money in debt as compared to the subsidized loans. There are no requirements to fulfill in order to get this type of loan and you can take a loan even if you are a graduate student. Apart from that you do not to explain that you need help or not and you can directly get a loan.
The biggest downside of unsubsidized loans is that you have to pay a higher amount of money in interest as the Department of Education does not pay on your behalf. You are not granted a grace period and you have to pay all the interest amount.

 

Conclusion

So, these are some of the pros and cons of subsidized and unsubsidized loans that you can take. There are advantages and disadvantages of both the loans that you must keep in mind before you take a student loan because these loans can change your life and the way you live. Colleges are costly and if you take a loan, you will have to return so I hope you will get some knowledge from my tips and will do the best decision for yourself. Do comment in the section below and let us know if you have any queries regarding the article because we would love to hear from you.

Zoe is a very keen writer, she also loves a freebie. Zoe shares her passion for making money, saving money and writes tips about free stuff. She is a keen reader and is obsessed with the book Normal People, as well as the show.

Posted on: 10/05/2020

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