Student loans are beyond stressful. It is one of the most important loans you are ever going to take out, and it’s during one of life’s most pivotal and challenging times to boot. If you go in blind and don’t manage your finances, you are going to end up buried beneath a mountain of debt before you’ve even given yourself a chance.
Going to university can cost thousands of dollars, sometimes even tens of thousands, and unless you’ve been blessed with an ungodly amount of money, you’re going to need to find a way to fund that from an outside source.
There are grant schemes, scholarships, and programs offered by various colleges for a variety of circumstances, but the people who get chosen for these are few and far between. Chances are, you aren’t going to be so lucky, so you’re going to have to do it the hard way.
That’s where student loans come in. You’re going to need one of these on account of education costing the same as a house, and because it’s this much money we’re dealing with, it is going to be a very long-term loan.
When we’re talking about this much time and money, you need to be sure that you know what you’re getting yourself in for. There are a few things to keep in mind, but one of the biggest is the difference between the two types of loans, subsidized and unsubsidized.
The Difference Between Subsidized and Unsubsidized Student Loans
An unsubsidized loan is a standard federal student loan that anyone can get. You have to qualify for a subsidized loan. That’s because, given that subsidized means for something to be partially financially funded, it is going to cost you less in interest in the long run.
So the big differences are, firstly, with a subsidized loan, you need to be able to demonstrate a financial need for the money. You need to show the institute you’re borrowing from proof of income, potentially your household’s earnings, as well as other financial documentation related to your ability to fund yourself through college.
Due to the fact that the government is essentially paying off a part of your student tuition for free, you need to be able to show them you actually need them to.
This is not the case for unsubsidized, where there is no need to demonstrate a financial need for the loan.
The amount of money you can actually borrow differs drastically between the two as well.
Again, considering the government is paying for a percentage of a subsidized loan, the upper limit on these is going to be set lower than an unsubsidized loan, which has a very high limit on how much you can borrow. It shouldn’t be so low as to be too little to actually pay for your tuition, but if you’re planning on applying for a subsidized loan, make sure that you can actually borrow the amount that you need.
Now, the big selling point of subsidized loans is that the Department of Education pays the interest on the loan while you’re in college. The typical rate is between 4-5%, and while that does not seem like much, it can save you a ton over the course of your tuition.
This is just over the course of your tuition, though, as the financial support endssix months after you graduate, unfortunately. Although, hopefully by then, you’ve secured yourself a decent job using your newly earned degree and can pay back the whole thing by yourself.
Of course, with unsubsidized loans, you don’t have this helping hand. Your interest accrues regardless of whether or not you’re in college, and every cent of it needs to be coming out of your pocket.
There is one more key difference between the two, and that’s who can actually apply for each loan.
Subsidized loans are designed to help new students just entering university-level education. That means that only undergraduates (people without a college or university level qualification) can apply for it.
For unsubsidized loans, undergraduates, graduates, or professional degree students can all apply no problem.
It is worth noting, though, that your school determines how much you can borrow with a subsidized loan, and that amount is proportional to your financial needs at the time.
Whether you are an independent student or a dependent one, also factors into how much you are allowed to borrow.
For example, if you’re a dependent student whose parents are eligible for a plus loan, your first-year loan limit is $5,500 dollars, with no more than $3,500 of that being in subsidized loans. That amount increases by $1,000 dollars for each year you are in school, up to your third and final year.
If you are an independent or a dependent student whose parents cannot get a plus loan, that amount starts at a $9,500 dollar limit, with the same $3,500 limit on the subsidized amount, which again increases by $1,000 dollars for each of the three years you’re studying.
For graduates and professionals, this amount it wildly higher: $20,500 dollars in unsubsidized funds only. At this point, you are considered an independent student regardless of circumstance.
There is one exception to these limits, and that’s if you are a medical student. In that case, you are eligible for higher limits on your loans, on account of the education costing more. So if you are, then speak to the financial aid office in your school about the limits you are eligible for.
Are There Any Other Options?
You may not want to take on so much debt so early into your professional life, and understandably so. In that case, there are a few unique grants that you may take advantage of depending on circumstance. Keep in mind that you don’t have to pay these back, so if you’re eligible for one, then go for it.
First is the Pell Grant. This is a grant for undergraduate students with a financial need or for a student studying a post-baccalaureate teacher certificate and is up to $5,920 dollars.
Learner’s parents who were killed in action in Afghanistan or Iraq post 9/11 are also eligible for this grant.
The Iraq and Afghanistan Service Grant is for those ineligible for the Pell Grant, whose parents died while performing military service in the above countries after the 9/11 terrorist attacks.
There is also the Federal Supplemental Educational Opportunity Grant. This is a grant of up to $4,000 dollars, depending on the availability of it at any particular school. The only prerequisite for this grant is that you are a student with exceptional financial need.
The Teacher Education Assistance for College and Higher Education Grant, or TEACH, is a supplemental grant with a limit of $4,000 dollars. However, for any grant that is disbursed after October 2019 and before October 2020, that amount is reduced by 6% down to $3,764 dollars.
The maximum amount awarded by the grant is $6,195 dollars, but like the TEACH Grant, that amount is decreased by six percent between the Octobers down to $5,830 dollars.
As well as the two circumstances mentioned above, there are additional requirements to qualify for this grant. First, you cannot receive the grant for more than 12 semesters. Secondly, you must have been younger than 24 or enrolled part-time at college when a parent or guardian died in service.
Direct Plus Loan
The last finance option available to you comes in the form of a loan, not a grant, available to your parents.
The Direct Plus Loan is a funding option parents can take out to make up the difference between the cost of their child’s education, and the amount that their child could borrow themselves.
The limit it the cost of attendance to the college minus any additional financial supplementation that the student has received.
Aside from being in college, the only requirement for this loan is to not have an adverse credit history.
Private Student Loan
On the topic of federal loans versus private loans, you are better off going with federal first nearly all of the time.
Private loans have a reputation for being brutal and unforgiving, and that stigma is well earned.
Private student loans carry much higher rates of interest than federal ones, and if the student has no credit history, which chances are they don’t, then it also requires a co-signer. Federal loans are far more forgiving and offer plenty of borrower repayment plans to help you get by the best you can financially.
The only time you should be considering a private loan is when you need to make up the difference in terms of your student loan limit and the college’s cost of admission. Even then, you should still try to get a Direct Plus Loan first.
If you can’t, and you have to go private, just make sure that you compare all of the institutes you find. Check what people are saying about them, and don’t forget to check the interest rates. As well as that, you need to know the repayment and forbearance options each institute offers before you borrow as well.
The landscape of the student financing world is constantly changing, and the options available to you in two years’ time may be drastically different than the ones available to you now.
There may be more grants, higher or lower loan limits, different repayment plans, and so on. So get some advice before you commit to anything. Speak to your school’s financial aid office or a career guidance counselor. They have been through it all, and their wisdom and advice can make the difference between a happy and thriving career and a lifetime of misery and debt.