Paying for College with Federal Student Loans
The perfect student loan depends partially on what the student may need for that school year. On the other hand, though, most student loans are not large enough to cover the student’s needs by themselves – a combination of subsidized and unsubsidized student loans may be needed to cover the expenses. Here are some details to show why you may need both subsidized and unsubsidized student loans and what the differences are.
The Subsidized Student Loan
Student loans all charge interest. Those interest rates continue to accumulate while the student is enrolled in school. The advantage of Federal subsidized loans is that the government pays the interest while the student is enrolled at least half-time in college – at the undergraduate or graduate level. Lenders, businesses, and others may also subsidize some student loans as well.
Stafford student loans are given primarily to students who are from low-income families – under $50,000 AGI. Approximately 30% of these loans are granted to students whose families have a higher income than that, and about 10% go to families that make more than $100,000.
Federally subsidized loans are limited to how much can be given per school year. This will also change depending on which year is involved. Here are the limits per year for students whose parents do not qualify to receive benefits from the PLUS program:
• Freshman Year $3,500
• Sophomore Year $4,500
• Junior Year $5,500
• Senior Year $5,500.
When added together, the benefits come to $19,000. When parents qualify to receive PLUS benefits, the loan amounts available are considerably higher – going up to $23,000 in subsidized loan limits for the 4 years.
The Unsubsidized Student Loan
Rising student costs have led to supplemental loan programs that provide much of – if not all of the difference between the subsidized loans and the actual cost of going to college. An unsubsidized loan differs from a subsidized loan in two ways.
The first difference is that there is no particular income level to limit who can apply for an unsubsidized loan. This means that anyone can apply for Federal Financial Aid – undergraduate or graduate. A second feature is that you must pay the interest while you are in college. It is possible to push back the interest onto the amount of the loan until 6 months after you graduate, but you will still pay all of the interest.
Many students need to get both the subsidized and the unsubsidized student loans because the subsidized loans are not large enough to pay for the full school bill each year. An unsubsidized college loan can provide larger amounts, but limits are also set on how big unsubsidized loans can be above the subsidized loan amounts. A student who is an undergraduate may be able to get an additional $6,000 for both the freshman and sophomore years, and an additional $7,000 per year in the last 2 years.
Graduate students get more from their unsubsidized student loan. A professional student can receive an additional $12,000 per year above the annual subsidized limit of $8,500, and a medical student is able to receive up to $32,000 per year more.
Paying Off the Student Loans
Interest rates are set by the government for all federal student loans for the next several years. Currently, for 2008 and 2009, the subsidized Stafford student loans for undergraduates are lower by about .8% than for graduates. This interest rate for undergraduates (6.0%) will decline through the 2011-2012 school year and will be as low as 3.4% for that year. After that, it goes back up to 6.8%, which is also equal with the graduate level Stafford loan interest rate. Interest rates for graduate students will remain at 6.8% for the next few years.
The interest for your subsidized loan is paid for you up to 6 months after you graduate, or until you are enrolled for less than half time . An unsubsidized loan, however, requires that you make the interest payments all during the time that you are in college. An option is to have your interest rolled back onto the student loan, which will enable you to be payment free while in school. The difference, however, is that it is considerably more costly because the student loan interest on the whole loan are accumulating during that time.
Make sure to fill out all the correct paperwork when applying for either subsidized or unsubsidized college loans to get the most out of them. The FAFSA form is universal for any government loan. Many students who could qualify often fail to get funds available simply because they do not fill out the paperwork needed.
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