After applying for college, you will get financial aid award letters that explain the types of financial aid you are eligible to receive. You might be interested in unsubsidized student loans, which are typically low-cost and have a fixed rate as they offer undergraduate and graduate students with the much needed financial help to start studies. Unsubsidized student loans are helpful in the right circumstances. So, what is an unsubsidized loan? This article highlights what is an unsubsidized loan, whether you are eligible, how to apply, and when to use the loan.

What Is an Unsubsidized Loan?

An unsubsidized loan, which is also referred to as a direct unsubsidized loan or unsubsidized Stafford loan, is a low-cost, fixed-rate federal government student loan that can benefit both undergraduate and graduate students. Financial need is not mandatory, which implies that students from wealthy families can still apply for the direct unsubsidized loans.


If you take an unsubsidized student loan, pay all interest accrued in the entire schooling period. It has no grace period and interest will accrue regardless of deferment periods. It differs from subsidized loans in different aspects. Subsidized loans are only meant for undergraduate college students still in school pursuing their courses and in need of help to pay for their tuition fees and related expenses. The loan is determined by the cost of the attendance minus the expected family contribution and other forms of financial aid the student is expected to receive, for example, scholarships and grants.


Subsidized loans differ from unsubsidized loans in that the Department of Education pays for the interest while the student is in school, provided that the student attends school at least half-time, and for the first six months after graduation, which is referred to as the grace period, and during deferment periods. You have to pay for interest if you choose unsubsidized student loans. If you do not pay the interest rate accrued on your loan while you are in school and during deferment, grace, or forbearance periods, the interest accumulates and is capitalized. This implies that the interest is added to your principal loan.


To qualify for an unsubsidized loan, you must first visit and complete the Free Application for Federal Student Aid (FAFSA). It is free to apply for FAFSA. If you qualify for the unsubsidized loan, your school notifies you.

To accurately know what is an unsubsidized loan, know what costs are covered. Unsubsidized loans cover for the cost of attendance, which includes:

  • Room and board
  • Tuition and fees
  • Supplies
  • Books
  • Transportation
  • Equipment
  • Miscellaneous personal expenses

To adequately know what is an unsubsidized loan, the following is a quick overview:

  • The loans are available to both undergraduate and graduate students
  • There is no requirement to show financial need
  • Your college determines the amount you are eligible to borrow based on your cost of attendance and other financial aid you receive
  • You pay the interest on a Direct Unsubsidized Loan during all periods

To adequately know what is an unsubsidized loan, the following is a quick overview:

  • Tuition and fees
  • Room and board (if you are living in college-owned student housing)
  • Other school charges (with your permission)

Benefits


The key benefits of unsubsidized loans include:

  • You will not make any payments while schooling
  • You are eligible even if you have not shown financial need or credit
  • It encompasses multiple repayment plans, which consider your income
  • A fixed interest rate of 6.6% for both professional and graduate students for the 2018-2019 academic year
  • A fixed interest rate of 5.05% for undergraduate students for the 2018-2019 academic year

When to Use an Unsubsidized Loan

loan throughout the years

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You should use unsubsidized loans if you are not eligible for subsidized loans. In addition, use unsubsidized loans if you are an undergraduate or graduate student in need of help to pay for your tuition fees and related expenses. It does not matter whether you are from a wealthy family. If you do not qualify for a subsidized loan, then the unsubsidized loan is your only option. Many students prefer applying for a subsidized student loan since it does not accrue interest while schooling.


The downsides of subsidized student loans are that not everyone will qualify. There are criteria you need to meet to be eligible. If you do not meet the criteria, then the unsubsidized loan is perfect for you. To be eligible for a subsidized loan, you must have enrolled at least half-time in an undergraduate program and take part in the Direct Loan Program that results in a certificate or degree. This implies that graduate students are not eligible for subsidized loans. This presents another reason you should use an unsubsidized student loan—if you are a graduate student, you are not eligible for a subsidized student loan.


In addition, applicants for subsidized student loans must show that they need financial aid in paying for the school fees. If you do not need financial aid but still need a loan for other school-related purposes, then you should use unsubsidized student loans. You should note that only undergraduates who have shown that they need financial help are eligible for the Direct Subsidized Loans. If you do not meet this requirement, then you should use the unsubsidized student loan. Professional and graduate school students, unlike in subsidized student loans, are eligible for unsubsidized loans.


You need to meet the following requirement for you to be awarded the subsidized loans. If you do not meet any of them, you a can check the requirements and eligibility criteria for unsubsidized loans. The eligibility requirements for subsidized loans are:

  • U.S. citizen, national, or eligible non-citizen
  • Undergraduate student
  • Enrolled at least half-time in an eligible program (degree or certificate program)
  • Have verified financial need as determined by the FAFSA
  • Meet general eligibility requirements for federal student aid
  • High school diploma or the equivalent (for example, GED)
  • Not in default on any existing federal student loans

Conclusion

student reading

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Students should know what is an unsubsidized loan before applying with FAFSA. An unsubsidized loan is a low-cost, fixed-rate federal government student loan that can benefit both undergraduate and graduate students. However, unlike subsidized loans, it accrues interest that should be paid along with the principal loan amount. Essentially, just like any other loan, pay all interest accrued in the entire schooling period. It has no grace period and interest will accrue regardless of deferment periods.


To qualify for an unsubsidized loan, you must first visit and complete the Free Application for Federal Student Aid (FAFSA). However, there is a set of criteria you should meet including having a high school diploma, enrolled at least half-time in an eligible certificate or degree program, not defaulted any existing federal student loan, meet general eligibility requirements for federal student aid, and you are a U.S. national, citizen, or eligible non-citizen.


It is free to apply for FAFSA. Once you qualify for the subsidized loan, your school notifies you and you are disbursed the amount you are eligible for. There are flexible repayment plans that will not overburden you since the interest rates are negligible. We hope that this article has adequately addressed what is an unsubsidized loan, eligibility requirements, how to apply, and when to use the loan.

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