If you are searching for students loan to support your higher studies, you might have come across two very popular terms “subsidized loan” and “unsubsidized loan”. These two methods are trending ways to get student loans easily. Here, in this article, we will attempt to clearly distinguish between both type of student loans, their pros, cons and make it easy for you to decide the better one our of these two types of students loans. To understand which one is the better one, first it is important to know what is subsidized loan and what is an unsubsidized loan.
A subsidized loan is the one for undergraduate students where the government pays the interest for the students in need when he or she is still in school and during the first six months after graduation as a form of the grace period. This is applicable only for undergraduate students and the student needs to apply through Free Application for Student Aid (FAFSA). Also, the students need to have a certain amount of attendance in school which determines his level of dedication towards the study, justifying whether he actually deserves the loan or not.
On the other hand, Unsubsidized loan can be applied for by both graduates as well as undergraduate students where the student pays back the loan. In this case, the students do not have to show any kind of financial need issues to the government.
Pros and Cons of Subsidized Loans
The only good characteristic here is the part where the government pays the loan interest for the student till the time the student graduates and even six months after that. These days education costs are pretty high and there are many good candidates who fall back due to financial problems. A subsidized loan is a great help in this regard, because of the test and attendance regulations only the deserving candidates get through the acceptance of such applications.
The problem with a subsidized loan is the amount. The amount depends on the school and what subject the student has taken up. The loan limit is 23000$. Usually, at first year the student gets around 3500$ and s the year goes it increases. But it does not meet the needs sometimes and that creates an issue for the student. Also, if you fail to show the financial need, like if your parents earn well then your loan grant can get canceled.
Pros and Cons of Unsubsidized Loans
The good characteristic here is it can be applied for an undergraduate or a graduate student. Since there is no need of showing financial requirements, students who want to fund their own education even after coming from a wealthy family can apply for this. This loan has a fixed interest rate and flexible payback schemes to suit the need of the student. Also, the maximum amount granted is much higher compared to that of the subsidized loan.
On the other hand, unsubsidized loan interest rates are a bit high when compared to subsidized loan. The unsubsidized loan needs to get paid by the student, the total amount with the interest accumulated. If the student fails to pay on time the amount of interest gets much higher, which in turn makes it difficult for the student to pay back.
Interest Rates for Subsidized loan is 4.45% whereas the interest rate for Unsubsidized Loan is 5.05% for undergraduate students and 6.6% for Graduate Students.
Criteria for Application
Requirements For Subsidized loan
- The student needs to be a US citizen, national or valid Non-citizen.
- Good Academic record is mandatory,
- Cannot be a defaulter of any previous financial aids.
- Needs to be enrolled minimum or at least half of the times.
- Needs to show that he or she is in a financial need.
Requirements For Unsubsidized loan
- The same rule of citizenship is applicable here.
- Needs to have a high school degree or diploma including General Educational Development or GED Certificate.
- Half time enrolment, minimum requirement.
- Not a defaulter in any of the financial aids, if received any.
- A social security number.
- Enrolled in a proper college with a programme which is Eligible for federal aid.
Deductions in Subsidized & Unsubsidized Loans
Yes, in these loans as well there is a small amount of deductions which is deducted after the loan disbursement. For a subsidized loan, the percentage is 1.006% while for unsubsidized it is 1.062%. It is almost the same. Though, sometimes the percentage varies depending on the time of the first loan installment pay-out.
Student life is the time when we plan for our future, it is a building block. No matter what subject we choose, taking proper decisions is very crucial in this case. The same is applicable for applying for a student loan. The student needs to read the terms and conditions. In the case of a subsidized loan, the student has the opportunity to save money. For example, if someone borrows 5000$ at the freshman year, after 4 years for a subsidized loan the payable amount will be 5000$ only since the government is paying the interest. So, Subsidized loans are a good choice.
If someone goes for an unsubsidized loan because of not being able to show the financial need to the government or because of being a graduate, before applying he or she must bear the fact in mind that paying the loan is a big responsibility. One failed installment leads to the accumulation of interest, increasing the amount every year. Also, choosing the proper college with the subject is another requirement. So consult elders, before taking up any further step. Also, read the FAFSA requirements carefully before applying for anything.
Subsidized or Unsubsidized?
This question remains unsolved because both of these loans have their own pros and cons. Since subsidized loans save up a lot of money, most of the votes go there. But then it has nothing good for graduate students who have to apply for unsubsidized loans. There is no denying the fact that subsidized loan amount is pretty less compared to the unsubsidized ones.
Subsidized loan repayment extends up to 10 years of the time period, whereas unsubsidized have repayment options such as Standard repayment, extended repayment, graduated repayment, Pay as you earn, income contingent repayment, income-sensitive repayment and the like. It is kind of a balanced equation with both of the loans having some amount of good as well as unsuitable characteristics.
But, there is no denying of the fact that these loans are helping out the students in need who are flourishing and making a bright future with the help of these loans.