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Unsubsidized Loans

sccarnicsccarnic Registered User Posts: 5 New Member
I am still learning the ropes for this whole financial aid process. My son was offered a $5500 student loan for his freshman year, which we are planning for him to accept. If we feel he does his best in college, we will likely end up paying off his loans for him when he graduates. I was a bit surprised to learn that the loan is "unsubsidized", which means that it accrues interest even while he's in school. Are students only offered subsidized loans if they have demonstrated financial need? If he can get this loan without a cosigner, why is the subsidized vs. unsubsidized criteria based on my income? My car loan and mortgage have lower interest rates than this student loan, so I'm wondering if there are other options available with deferral of payments. We want our son to at least feel like he has some skin in this game rather than having us write the check every semester, but the interest is an annoyance.

Replies to: Unsubsidized Loans

  • BelknapPointBelknapPoint Registered User Posts: 3,459 Senior Member
    edited April 16
    Are students only offered subsidized loans if they have demonstrated financial need?

    Generally, yes.

    If he can get this loan without a cosigner, why is the subsidized vs. unsubsidized criteria based on my income?

    Because financial need is based on a picture of the family financial situation, with parental income playing the largest (not the only) part in this calculation.

    My car loan and mortgage have lower interest rates than this student loan, so I'm wondering if there are other options available with deferral of payments.

    Your car loan and mortgage are secured with collateral, while the student loan has no collateral. That's one reason for the difference in the interest rates. The federal direct loans are probably the best unsecured education loans you will find.

    We want our son to at least feel like he has some skin in this game rather than having us write the check every semester, but the interest is an annoyance.

    Than don't borrow the money.
  • rickle1rickle1 Registered User Posts: 690 Member
    1. Your car loan and mortgage rates, albeit lower, are YOUR loans. You are 100% responsible for them regardless of any agreement you have with your child.

    2. His unsubsidized loan is entirely HIS responsibility (which is why they cap it to around 27k over four yrs.

    3. Although the unsubsidized loan accrues, you can make interest payments whenever you want (or reduce principal. We are paying the interest for S's loan in real time so nothing accrues and he will graduate with a know amount based on maxing out the four yr program. They'll allow payment to be linked to parent's checking so no problem paying as you go. Depending on other finances, we may pay off some principal as we go as well to get him down to 20k upon graduation (a little pain but not too bad considering the upside opportunities he'll have).
  • amom2girlsamom2girls Registered User Posts: 324 Member
    @rickle1 , that is a great idea. We will look to set that up for next fall. Do you remember how much the interest is each month?
  • sccarnicsccarnic Registered User Posts: 5 New Member
    Thanks for the replies. I think we may go ahead and make the interest payments while he's in school, and at least get the principal down to what we feel is a manageable amount when he's done.
  • rickle1rickle1 Registered User Posts: 690 Member
    @amom2girls The interest is very little. The loan ultimately gets serviced by a commercial lender. Ours sends my son a statement quarterly, he forwards to me and I pay it online. He's a Freshmen so the first yr is $5500 principal. Interest payments have been very low. 2nd yr loan will be 6500 and principal will accrue. I remember paying $25 - 40 a few times. They also ask if you want to apply your payment to principal reduction instead of interest which would result in a refund of loan payment. We've simply opted to pay interest and will let my son worry about the loan when he graduates.
  • thumper1thumper1 Registered User Posts: 67,863 Senior Member
    This is sort of funny. I just yesterday shredded my first kid’s loan disbursement information for his four years of undergrad (he finished that in 2007). Oddly, he never took the full Direct Loan amount! I had no idea!

    We paid the interest each year as we went with both of our kids. We were not eligible for subsidized loans...as we didn’t have financial need according to the colleges.

    Their graduation present was payment of these student loans. The payment was a drop in the bucket compared to what we were paying each month while they were in college.



  • Erin's DadErin's Dad Super Moderator Posts: 34,983 Super Moderator
    We did the same. That's a nice graduation gift - principal only for the loans.
  • ccsouthccsouth Registered User Posts: 195 Junior Member
    @amom2girls the rate for direct unsubsidized loans is 4.45% per year or 0.0001219178 per day.

    So the first disbursement of $2750 is just over $10 per month in interest. Then the second disbursement of 2750 another $10 per mo. Then use same factor for each loan disbursement during soph, junior, senior years. Then when the student selects a payment plan when they graduate they will pay the same interest rate on whatever the principal balance is when the loan(s) convert to the normal repayment period.
  • thomas4881thomas4881 Registered User Posts: 90 Junior Member
    edited April 16
    It's unsubsidized because they figure you can afford it. I think college should be free because testing will still weed out those who can't handle it.
  • thumper1thumper1 Registered User Posts: 67,863 Senior Member
    It’s unsubsidized because the COLLEGE has determined its unsubsidized based on your financial need at that college.

  • bgbg4usbgbg4us Registered User Posts: 749 Member
    it is sort of confusing to me too, why subsidized or not.

    My D and S are both at the same public college. D was offered $5K in subsidized loans next year; S was offered $1k. S has a higher EFC (savings) and has a scholarship; D has neither. I'm thinking it has to do with their EFCs and cost of attendance, right?
  • amom2girlsamom2girls Registered User Posts: 324 Member
    @rickle1 and @ccsouth thank you so much for the explanation. Her loan is half subsidized and half not. It is helpful for us when planning next year:)
  • twoinanddonetwoinanddone Registered User Posts: 16,637 Senior Member
    $2000 of the loan is always going to be offered as unsubsidized. For Freshman, $3500 CAN be subsidized, but $2000 is always going to be unsubbed. For sophomores, it's $4500 MIGHT be subbed, $2000 unsubbed.

    The schools determine the amount to be subbed based on the EFC and other aid. Very roughly, it is COA (less) other aid (less) EFC. If that number is greater than zero, you have need and it's subsidized. If not, you can still take the loan but unsubbed.







  • thumper1thumper1 Registered User Posts: 67,863 Senior Member
    @twoinanddone

    I will grant you all..it was the 2006-2007 school year...but both of our kids were in college...and each had an expected contribution of $24,000 or so at schools that didn’t guarantee to meet full need...and cost about the same $45,000 or so at that time.

    One kid got offered subsidized loans...and the other did not.

    Neither had enough merit or other aid to cover the difference between the cost of attendance and our EFC.
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