What Is An Unsubsidized Student Loan?

Most student loans are unsubsidized. A subsidized loan, which is generally available to students with the most extreme financial need, is a loan for which the federal government pays the interest during the time the student is still enrolled and for a six-month grace period following graduation. Unsubsidized loans require that the student begin re-paying the interest immediately. Of course, most students do not do this – if possible, they defer the interest, capitalizing it as part of the balance and begin re-payment after a six-month post-graduation grace period. Sallie Mae caused a furor in 2009 when it announced that it was requiring interest repayment from the time of disbursement on their flagship unsubsidized loan.

Federal Unsubsidized Student Loans

By far the most popular federal unsubsidized loan is the Stafford Loan. This loan is available regardless of financial need, and virtually every student who files a FASA receives this loan. Filing a FAFSA is the only way to apply for this loan. The interest rates for this program are very low compared to rates for private loans, but the amount awarded in a Stafford Loan is not close to the total cost of attending most post-secondary schools. Stafford Loans are a crucial first step in a fiancial aid plan, but they are only the beginning.

The Perkins Loans is another unsubsidized federal student loan. Financial need is a factor in awarding a Perkins loan, and students have a nine-month post-graduation grace period.

Typically the monies awarded in a Perkins loans come from the government and from the student’s college. To get the most you qualify for under Perkins, it is essential to apply early because school awards these funds on a first-come, first-served basis.

PLUS Loans for parents and graduate students are other forms of unsubsidized student loans. As with all federal aid, students must file a FAFSA to be apply.

Private Unsubsidized Loans

All private loans from a bank or student loan company are unsubsidized, since the borrower is responsible for all interest that accrues. The interest rate on private loans will be higher than it is on federal loans, so is it essential that students exhaust all their federal loan options before turning to the private sector. As the Sallie Mae example shows, the terms of an unsubsidized private loan can be much more rigid and less borrower-friendly than those of an unsubsidized government loan.