Understanding Subsidized And Unsubsidized Student Loans
With more and more college students now facing higher student debt when they graduate, it is becoming important for upcoming college students to better understand student loans. During their college years, students may either avail of subsidized or unsubsidized student loans. Sometimes, they can even avail of both. It is important for such students to know the different between the two types of student loans if they even wish to have better control over their accumulating college debt.
What are subsidized student loans?
Subsidized student loans are student loans that do not require the student to pay interest while still enrolled in college. It is usually the federal government that pays for the interest. It is sort of a grace period offered to college students to keep their debts manageable over time. This grace period ends when the student graduates, in which time he or she starts to pay for the loan and the interest.
What are unsubsidized student loans?
Unsubsidized student loans are those student loans that require students to pay the interest on the loan while still in school. Similar to a subsidized loan, payment of the principal is deferred for 6 months after graduation. But the interest payments on the student loan become the sole responsibility of the college student.
Advantages and Disadvantages
Subsidized student loans allow students to enjoy the benefit of not having to pay for interest on their loan while still in school. This can help minimize the overall debt that they have to pay later on. But one disadvantage is that there can be a tight limit on how much a student can acquire from such a loan. Subsidized student loans are usually based on a student’s financial need and dependent on his or her financial situation of status.
An unsubsidized student loan usually offers a larger amount for borrowing as compared to a subsidized loan. This gives the student access to larger funds to spend on his or her college education. But the disadvantage is that unsubsidized student loans accrue interest while the student is still in school. This can lead to a higher college debt that the student may have to deal with upon graduating. In order to keep debt to a minimum, college students may need to be aware of the interest payments of their unsubsidized student loans and should try to pay it while still in school. This will help prevent compounding that will lead to higher debts in the future.
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Tags: Loans, Student, Subsidized, Understanding, Unsubsidized
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