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Subsidized Federal Direct Loan?

6thDAY6thDAY Posts: 5Registered User New Member
Hello guys, this is a wonderful site that I decided to register and hopefully I wont be belittled.

I asked somewhere else and they made me feel like an idiot :(.

OK so here goes, these are probably stupid questions:

I am a first generation college student and I was recently accepted to UCSD. I got financial aid grants that covers my first year tuition.

I also got offered $5500 in Federal Direct Loans Subsidized.

On their website regarding the fees for Federal Subsidized Direct loans it says, that ""Loan origination fee of 0.5%, which results from a 1.0% origination fee that has an up-front interest rebate of 0.5% fee. Effective for loans first disbursed on or after July 1, 2012 the loan origination fee will be 1.0%."

I understand that I'm getting a rebate of 0.5% fee which means the origination fee is 0.5%.

The part that is confusing to me is the end where it says " Effective for loans first disbursed on or after July 1, 2012 the loan origination fee will be 1.0%."

1. So is the actual origination fee 0.5% after the 0.5% rebate is applied to 1.0%? Or is it actually changed to 1.0% on or after July 1, 2012?


2. Secondly, if I were to accept $5500 for the direct loan, and I end up using only $2500 after I graduate, do I pay interest for $2500 or $5500?

3. What happens to the $3000 in my student account that I didnt use during my time at UCSD?

Sorry again for the stupid questions, the UCSD financial aid office didnt give me the responses I was looking for.

Thanks guys!
Post edited by 6thDAY on

Replies to: Subsidized Federal Direct Loan?

  • swimcatsmomswimcatsmom Posts: 14,871Registered User Senior Member
    The people who made you feel like an idiot are the idiots. This is all a bit confusing to people new to it plus, as you have already discovered, the rules change all the time.

    Before I answer your questions - Are you a dependent freshman? if so, the maximum you can receive subsidized is $3500 - the other $2000 will be unsubsidized. You need to double check your aid offer. Ubsub loans have a higher interest rate and interest starts to accrue immediately. You need to make sure you understand what your loans are.
    1. So is the actual origination fee 0.5% after the 0.5% rebate is applied to 1.0%? Or is it actually changed to 1.0% on or after July 1, 2012?

    The .5% rebate does not exist on new loans disbursed after July 1, so the origination fee will be 1.0%. This means that for every $1000 you borrow, 1% or $10 will be deducted up front and you will actually receive $990.

    2. Secondly, if I were to accept $5500 for the direct loan, and I end up using only $2500 after I graduate, do I pay interest for $2500 or $5500?

    If you accept the full $5,500 (and you are on a semester system), it will be disbursed in 2 equal installments of $2750 (less the origination fee, so actually $2722.50 per semester)

    If you accept the $5500, it will be disbursed to you. You will then pay interest and repay the full $5500. If you accept less than the full $5500, you will pay interest on and repay only what you actually borrow.
    3. What happens to the $3000 in my student account that I didnt use during my time at UCSD?
    If you accept $5500, any money let after paying direct school charges such as tuition/fees/room&board will be paid to you to use for other expenses - books, travel etc.
  • 6thDAY6thDAY Posts: 5Registered User New Member
    thank so much much for the clarification.

    To answer your question, I am an independent transfer student, and UCSD goes by the quarter system, 3 quarters per year.

    And indeed the $5500 is all subsidized, I declined the unsubsidized loan that I was offered.

    Now in response to your 2nd and 3rd answer to my questions, the financial aid office told me the loan will be disbursed to my university student account.

    Sorry about this but I am still a little bit confused on your 2nd and 3rd answers.

    If I actually borrowed and accepted the offer for $5500, and all $5500 was disbursed to my student account, I understand that i would pay interest for the $5500, but if I only use, for example $2500 until the time I graduated, can I use the $3000 left over in my student account and apply it towards the $5500 loan?

    So that means I only have a $2500 loan to pay off (not including interest)?

    Thanks again!
  • swimcatsmomswimcatsmom Posts: 14,871Registered User Senior Member
    Oh, ok - if you are a transfer student the maximums are higher - $5500 for 3rd year student. That makes sense.

    If you are in a quarter system, the loan will be disbursed in 3 equal payments per quarter.

    If you accept the full loan, it will all be paid into your school account and the excess left after direct expenses should be paid to you by the school. It won't sit in your account at school - it is your money. You can of course choose to use the money to repay part of the loan at an time. If you repay $3000 of the loan before you graduate or drop below half time, then, once you graduate or drop below half time, you will only incur interest on and have to repay the outstanding balance of $2500.

    If you are sure you will not use the $3000, consider whether you want to accept the full amount. Remember you will only receive $2970 of it because of the origination fee, so if you immediately repay it you will have payed $30 for nothing.
  • 6thDAY6thDAY Posts: 5Registered User New Member
    Got it!

    thanks mom (hope you dont mind :) )

    one last question (or 2):

    This $5500 direct loan that I was offered, this is just a 1 year offer correct and does not cover the whole time that I am at the university?

    Meaning, if I accept $2500 instead of the full $5500 for this year, then for next year, if I apply for financial aid again, I may (depending on my financial situation) receive another direct subsidized loan offer that I can accept or decline?

    So if the answers to those questions are yes, then would you recommend I take out only what I "think" I will need, then if I find out I need to borrow more for the next school year, I can always accept another loan offer from my financial aid (if I apply for it again)?

    Sorry, that was 3 questions :)
  • swimcatsmomswimcatsmom Posts: 14,871Registered User Senior Member
    Yes, the entire FA offer you have, including the loan, is just for the upcoming school year. FA for the 2013-2014 school year will be based on the 2013 FAFSA (using 2012 income) that you can file after 1/1/2013.

    Yes, assuming your financial situation stays the same (and there are no changes in FA rules), you should be offered loans again next year.

    It is always a good idea to not borrow more money than you need.
  • mathmomvtmathmomvt Posts: 3,855Registered User Senior Member
    One option that may work for you if you don't really know how much you'll need for your "indirect" expenses (travel, textbooks, personal expenses) is to accept the full $5500 loan at first in which case 1/3 of that will get disbursed to you for the first quarter. Then if expenses are going according to your expectation and you don't need as much for the 2nd or 3rd quarters, you can put in a loan adjustment request and ask them to disburse less to you for the 2nd and/or 3rd quarter.
  • 6thDAY6thDAY Posts: 5Registered User New Member
    you bought up an interesting point mathmom, so I thought I would ask a FINAL question if one or both of you could answer.

    Since I dont know how much I would need for my expenses, I am "thinking" of taking on the offer of the full $5500.

    The reason why is because I want to use the "left-over" amount from the loan for the next school year.

    Is this a bad idea of thinking?

    basically, I dont want to worry about having 2 loans to pay back after I graduate.

    I want it all to be neatly compacted into one loan when I graduate, which is why I "thought" taking the full $5500 loan amount should cover my whole time at the unversity

    So once gain, is this a bad way to go?

    Or should I take your way 1st mom and borrow only what I need?
  • kelsmomkelsmom Posts: 12,294Super Moderator Senior Member
    If you are disciplined and won't spend the extra money, borrowing this year and saving it to use for next year is an okay way to do it ... as long as it is a subsidized loan (you wouldn't want to do that with an unsub, due to the interest).
  • mathmomvtmathmomvt Posts: 3,855Registered User Senior Member
    Since it's a subsidized loan, I think if you'll need the whole $5500 at some point, I can't think of any disadvantage to taking the whole thing this year. You don't want to take more than you need overall because as swimcatsmom said, you'll pay the origination fee for nothing. But if it's money you definitely want to borrow eventually, since it doesn't accrue interest when you take it, there's no disadvantage to taking it early.

    Well, actually, let me qualify that. Money you have sitting around in your bank account when you fill out your FAFSA next year will impact your financial aid for next year. If you're only getting the loan, I don't think it will matter, but if you're getting other grant aid, you wouldn't want that to be reduced by having "extra" money sitting around in your bank account when you fill out next year's FAFSA
  • 6thDAY6thDAY Posts: 5Registered User New Member
    wow mathmom, you are right on the ball about this.

    I do have other financial aid assistance that was provided to me. I was giving University Aid, the Federal Pell Grant, and also the Cal grant for this upcoming school year.

    So I guess its not a good idea then to borrow more than what I need and have the remaining unused sitting there when I file for next year's FAFSA, as it will affect how much aid I will receive for next year?
  • mathmomvtmathmomvt Posts: 3,855Registered User Senior Member
    kelsmom is the real expert here, but I think if you are eligible for grant aid, you want to minimize what is in your bank account on FAFSA day.
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