College Financial Aid Help

[Ject3189]

Can anybody give me a lay-man's terms understanding of these two different types of loans?

 

[Whisper]

Subsidized = government/lender pays interest while you're enrolled in school per the borrower agreement
Unsubsidized = interest begins accumulating immediately, although you generally have the option to defer payments until after graduating/leaving school

 

[Special K]

Whenever you take out a student loan, interest begins to accrue immediately.

subsidized loan - the government pays this interest while you are in school. When you graduate, the amount of money you owe is equal to the amount of subsidized loans you originally took out.

unsubsidized loan - the government does not pay the interest while you are in school. Interest accrues the entire time, and is added to your principal (capitalized) after you graduate*. You are allowed to pay off the interest each month while you are in school.

*Can someone clarify one thing for me - is the interest accrued on unsubsidized loans added to the principal each month, or is it not added until you graduate? If it's added each month, then you are in effect paying interest on interest if you do not pay off the interest each month.

I'm pretty sure private loans capitalize interest on a monthly basis, but I'm not sure about unsubsidized stafford loans.

 

[Corporate Thug]

Subsidized = good
Unsubsidized = bad

 

[jarfykk]

Unsubsidized != bad, just worse terms than subsidized as they accrue interest while you're in school (subsidized do not). They fill an important part of how financial aid is doled out these days. You DO have the option of paying the interest on the unsubsidized loans and if you have the spare cash, might make sense to.

An example:

I) $10,000 in subsidized loans (at 6%) each year for four years mean after you graduate (usually within six month), you'd begin repaying a loan of $40,000 at X% interest over a certain period, usually 10 years.

II) $10,000 in unsubsidized loans (at 6%) each year for four years mean after you graduate (usually within six month), you'd begin repaying a loan of $43,736 ($40k principal plus $3,736 in accrued interest, ymmv) at X% interest over a certain period, usually 10 years.

You will usually have some mixture of the two depending on how much and which kind of aid you qualify for and your school's expected costs. Interest rates vary and are set each July.

You can consolidate your loans upon graduation to a fixed rate through either your lender, another lender, or the government itself. However these consolidation programs are much less generous than in previous years (some changes by Congress to make loans cheaper up front...ymmv :-/ ) but all still lock in a set rate, allow you to stretch the payments over a longer terms (e.g. 20 years instead of the normal 10), and generally knock off 0.25% interest for automatic payment from your checking account. With interest rates hovering somewhat near what you can get from a good savings account, the motivation to pay them off early is minimal. Federal student loans also go away upon your death (i.e. do not impact the estate) so something else to consider if you're older/poor health/long loan term.

 

[duragezic]

My first year, I got about $5000 in Stafford/Direct loans. Over 80% was subsidized. After that year or the next, the ratio reversed and nearly everything was unsubsidized. Just got a notice a couple of days ago saying I have $960 in unpaid interest. Great...

 

[Special K]

Originally posted by: jarfykk
Interest rates vary and are set each July.

Not anymore. Refer to this link:

Stafford Loan Rates

BTW OP, there seems to be a lot of good information about Stafford loans on that site. Another decent one is Finaid

Originally posted by: jarfykk
You can consolidate your loans upon graduation to a fixed rate through either your lender, another lender, or the government itself. However these consolidation programs are much less generous than in previous years (some changes by Congress to make loans cheaper up front...ymmv :-/ ) but all still lock in a set rate, allow you to stretch the payments over a longer terms (e.g. 20 years instead of the normal 10), and generally knock off 0.25% interest for automatic payment from your checking account. With interest rates hovering somewhat near what you can get from a good savings account, the motivation to pay them off early is minimal. Federal student loans also go away upon your death (i.e. do not impact the estate) so something else to consider if you're older/poor health/long loan term.

Again, the advantages of consolidation aren't nearly as good as before since the interest rates on Stafford loans are now fixed. They used to be tied to the 91-day Tbill. Stafford loans issued after July 2006 were the first ones to adopt the fixed rate formula. I lucked out and was able to lock all of mine in at the 2004 Tbill rates when interest rates were near 0.

 

[Bignate603]

If you have an option between subsidized and unsubsidized loans always chose the subsidized.

 

[Zee]

subsid- pay back what you borrowed
unsubsid- pay back what you borrowed + interest

 

[Special K]

Originally posted by: Zee
subsid- pay back what you borrowed
unsubsid- pay back what you borrowed + interest

This definition is a little too brief. You will still pay interest on subsidized loans once they enter repayment.

 

[Ject3189]

Originally posted by: Special K

Originally posted by: jarfykk
Interest rates vary and are set each July.

Not anymore. Refer to this link:

Stafford Loan Rates

BTW OP, there seems to be a lot of good information about Stafford loans on that site. Another decent one is Finaid

Originally posted by: jarfykk
You can consolidate your loans upon graduation to a fixed rate through either your lender, another lender, or the government itself. However these consolidation programs are much less generous than in previous years (some changes by Congress to make loans cheaper up front...ymmv :-/ ) but all still lock in a set rate, allow you to stretch the payments over a longer terms (e.g. 20 years instead of the normal 10), and generally knock off 0.25% interest for automatic payment from your checking account. With interest rates hovering somewhat near what you can get from a good savings account, the motivation to pay them off early is minimal. Federal student loans also go away upon your death (i.e. do not impact the estate) so something else to consider if you're older/poor health/long loan term.

Again, the advantages of consolidation aren't nearly as good as before since the interest rates on Stafford loans are now fixed. They used to be tied to the 91-day Tbill. Stafford loans issued after July 2006 were the first ones to adopt the fixed rate formula. I lucked out and was able to lock all of mine in at the 2004 Tbill rates when interest rates were near 0.

Well financial aid has awarded me with X amount of both subsidized and unsubsidized loans. I don't believe I have the option to decline.
Sorry for the late response and bringing back a dead topic (Was busy since the Original Post)

Could anybody elaborate this more for me? I've been looking into the issue myself but I'll need to call the college tomorrow during open hours to get the full details. Also what are some key questions I should ask when it comes to Federal Direct Loan Entrance Counseling?

 

[pray4mojo]

Originally posted by: Ject3189

Originally posted by: Special K

Originally posted by: jarfykk
Interest rates vary and are set each July.

Not anymore. Refer to this link:

Stafford Loan Rates

BTW OP, there seems to be a lot of good information about Stafford loans on that site. Another decent one is Finaid

Originally posted by: jarfykk
You can consolidate your loans upon graduation to a fixed rate through either your lender, another lender, or the government itself. However these consolidation programs are much less generous than in previous years (some changes by Congress to make loans cheaper up front...ymmv :-/ ) but all still lock in a set rate, allow you to stretch the payments over a longer terms (e.g. 20 years instead of the normal 10), and generally knock off 0.25% interest for automatic payment from your checking account. With interest rates hovering somewhat near what you can get from a good savings account, the motivation to pay them off early is minimal. Federal student loans also go away upon your death (i.e. do not impact the estate) so something else to consider if you're older/poor health/long loan term.

Again, the advantages of consolidation aren't nearly as good as before since the interest rates on Stafford loans are now fixed. They used to be tied to the 91-day Tbill. Stafford loans issued after July 2006 were the first ones to adopt the fixed rate formula. I lucked out and was able to lock all of mine in at the 2004 Tbill rates when interest rates were near 0.

Well financial aid has awarded me with X amount of both subsidized and unsubsidized loans. I don't believe I have the option to decline.
Sorry for the late response and bringing back a dead topic (Was busy since the Original Post)

Could anybody elaborate this more for me? I've been looking into the issue myself but I'll need to call the college tomorrow during open hours to get the full details. Also what are some key questions I should ask when it comes to Federal Direct Loan Entrance Counseling?

i have the option to decline my loans and i have been.

 

[duragezic]

Originally posted by: Ject3189

Originally posted by: Special K

Originally posted by: jarfykk
Interest rates vary and are set each July.

Not anymore. Refer to this link:

Stafford Loan Rates

BTW OP, there seems to be a lot of good information about Stafford loans on that site. Another decent one is Finaid

Originally posted by: jarfykk
You can consolidate your loans upon graduation to a fixed rate through either your lender, another lender, or the government itself. However these consolidation programs are much less generous than in previous years (some changes by Congress to make loans cheaper up front...ymmv :-/ ) but all still lock in a set rate, allow you to stretch the payments over a longer terms (e.g. 20 years instead of the normal 10), and generally knock off 0.25% interest for automatic payment from your checking account. With interest rates hovering somewhat near what you can get from a good savings account, the motivation to pay them off early is minimal. Federal student loans also go away upon your death (i.e. do not impact the estate) so something else to consider if you're older/poor health/long loan term.

Again, the advantages of consolidation aren't nearly as good as before since the interest rates on Stafford loans are now fixed. They used to be tied to the 91-day Tbill. Stafford loans issued after July 2006 were the first ones to adopt the fixed rate formula. I lucked out and was able to lock all of mine in at the 2004 Tbill rates when interest rates were near 0.

Well financial aid has awarded me with X amount of both subsidized and unsubsidized loans. I don't believe I have the option to decline.
Sorry for the late response and bringing back a dead topic (Was busy since the Original Post)

Could anybody elaborate this more for me? I've been looking into the issue myself but I'll need to call the college tomorrow during open hours to get the full details. Also what are some key questions I should ask when it comes to Federal Direct Loan Entrance Counseling?

Of course you can decline. In my case, I needed and accepted every bit of financial aid that I could get. But if you have other means, then sure you probably want to avoid a loan.

I could do it all online: either accept the full loan, accept a specified amount less than the loan total, or decline it all.

As for the Entrance Counseling, I don't remember what that was about. I had to do the Exit Counseling a few months ago since I graduated, and really it was all just reminding you of the information that has been on the paperwork sent to you.

 

[Ject3189]

I see, so I can just deny the unsubsidized loan and keep the subsidized correct?

 

[wiredspider]

Originally posted by: Ject3189
I see, so I can just deny the unsubsidized loan and keep the subsidized correct?

yes, or just deny all of them....

I think this stuff is usually explained in the financial aid package...worries me that you are going to college...