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What does it mean to have a subsidized Stafford loan?

I cannot possibly fund my tuition fee, so I have applied for federal student loans for college. I have settled for Stafford because it also offers graduate loans which I can borrow later for my masters.  I did the application process in a hurry and did not have time to look up how these loans work. So, when I got an award letter for my loan acceptance, it was specified that I had got a subsidized Stafford loan. I don’t understand, does this mean that I get federal student loan repayment assistance?

Megan Page

in Student Loans

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Victoria Fowler on April 30, 2018

Stafford loans, which have become very popular among students applying for college in the US today, come in two major types. These include subsidized and unsubsidized loans with the money being given by private lenders or directly by the government. Both of these loans have some similar features, but also significant distinguishing differences.

Subsidized federal loans are awarded to applicants who meet a specific low-income threshold. Granting of these loans is subject to the details you give in your FAFSA form. If the government assesses you and your parents’ financial status and determines that you cannot be able to pay for your college, you can qualify for a subsidized loan.

However, if you are seeking financial aid to pay for a graduate study, you do not qualify for the government subsidy on your graduate loan.  Only undergraduate students are eligible for this type of loan.

In this case, the government pays for all the interest that accrues on your federal loan for the time you are enrolled in school. However, you must be registered full-time or half-time in your degree course. Therefore, if you change to part-time or take a hiatus without an authorized deferral, the government stops payment of interest on your loan.

Additionally, you get six months’ grace period before you begin paying back your loan. Once you start repaying your federal student loan, the government stops paying for your interest. Therefore, you will be required to pay the principal amount that you received plus any interest that accrues in the period you will be paying.

On the other hand, Stafford’s unsubsidized loans are given to students who don’t show financial need. For this type of loan, the student is responsible for paying the principal amount plus all the interest that accrues while they are in school.

In the unsubsidized loan, the student can choose to pay for the interest while still in school or let it be added to the loan repayment amount. However, students still get a six months’ grace period after graduation before they are required to start making payment.

What is common with both types of federal students’ loans for college is:

  • The loan application process, i.e., FAFSA form.
  • The origination fee of one percent.
  • Both don’t require a cosigner or a credit check.
  • The loan interest rate is the same (about 4-5% for undergraduate students).
  • Income tax deduction.
  • Loan repayment plans.
  • Your loan usage.

Charles McAlear2 years ago

There is also another significant difference between the two types of Stafford loans. Unsubsidized federal loans allow students higher loan limits. Typically, the total amount you can borrow in a subsidized loan for your undergraduate is $23,000. However, for an unsubsidized loan, independent students can receive up to $57,500 while dependent students can get a maximum of $31,000.

Therefore, there is no wrong or right federal loan, it depends on your financial need. Once you submit your loan application to your school, you’ll receive an award of which type you qualify for and how much you will receive. At this point, you have the option to either accept or reject the offer.

Some schools, however, may give a student both loans. In such a case, you are not expected to choose just one but both loans (although you may choose if you feel that only one is enough for your expenses).


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