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What is an Unsubsidized Loan?

With an unsubsidized student loan, interest begins to accrue when the money is disbursed.
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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 02 September 2014
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Unsubsidized loans are student loans that make it possible for students to finance an education while attending a college or university. Students can choose to make interest payments while still in school or capitalize the interest and making payments after they have finished their education. As a rule, interest on this type of loan begins to accrue as soon as the loan amount is disbursed.

It is possible to obtain an unsubsidized loan from a number of different financial institutions. The student usually has to meet some type of criteria in order to command the best interest rate. However, even students who are considered to be high risk due to the financial condition of the family can usually obtain unsubsidized financing carrying a higher rate of interest.

An unsubsidized loan does not provide some of the advantages of a subsidized loan. With subsidized versions, the interest is covered by the federal government prior to the commencement of repaying the loan balance. This arrangement means that the student does not have to be concerned about interest payments while still in school or deal with capitalized interest after graduation.

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Still, an unsubsidized loan may be the best option for some students. This is particularly true if the grade point average is not high enough to meet the qualifications for a subsidized one. In addition, the student may not meet the conditions of financial need associated with a subsidized loan. Since the requirements for obtaining an unsubsidized loan are less stringent, students whose families have an annual income too high to qualify for subsidized ones can still obtain unsubsidized financing to help manage educational expenses.

Applying for an unsubsidized loan is a relatively simple process. Many colleges and universities will assist students in finding loans of this type and helping with the application process. There are also many banks, credit unions, and loan companies that feature a student loan program that is composed of several different loan options.

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Amphibious54
Post 3

@ Fiorite- Those with outstanding loans can take advantage of the new loan benefits too. You can take your old loans and roll them over into a loan serviced by the fed. This will allow you to take advantage of the cap on payments.

I am not sure how the loan consolidation works for those who have already graduated, but the federal government’s student aid website will be able to answer any inquiries.

I had 2 years of outstanding loans through Sallie Mae, and they ended up selling them back to the government so I am able to take advantage of the new rules. I am still a student though.

Fiorite
Post 2

@ Amphibious54- You stated that new rules govern the Stafford loan program. I have my first two years of school loans serviced by a big bank, but they do not offer the same options as the new loan standards. Is there anything I can do to take advantage of these new rules, or are the benefits only available to new borrowers?

Amphibious54
Post 1

While the rules for private subsidized and unsubsidized loans may be different, Federal Stafford Loans require no credit check, or minimum GPA. Almost any United States Citizen can apply for a Stafford loan.

The Stafford loan is the same as the unsubsidized and subsidized loans described in the article, but they have the lowest interest rates on the market. I think current rates are around six percent, much better than the nine percent some major banks are charging for school loans.

The best thing about unsubsidized loans is that repayment does not begin until six months after graduation. Stafford Loans also have a cap on the maximum loan payment amount. New rules passed in the Health Reform Bill of 2010 states that students should not make payments that are higher than 10 percent of their monthly income.

Now the government directly services Stafford Loans, making them cheaper than when they private banks serviced them. Terms are also more consumer friendly. If you have to borrow, borrow through the Stafford Loan program.

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