For a prospective or current college student it is important to know the two different types of Stafford loans. Of course, we are all aware of the importants of being educated about a loan. But, equally as important is realizing what these student loans mean for your financial future. Remember it is your education and your money. Two things that have extreme importance in today’s world.
Subsidized Stafford student loan means that no interest accrues on this loan while you are in school at least part time. Interest starts accruing on the 6th month after you graduate, or withdraws from school, or 6 months after you drop below part time. The government puts limits on how much you can borrow because they are the ones paying the interest for you to the lender.
Unsubsidized Stafford student loan are a bit different. They accrue interest from the moment it is disbursed. You, the borrower, have the option to pay the interest monthly, or let the interest accrue and be capitalized. For a $3,500 Unsubsidized Stafford loan with a rate of 6.8%, this will accrue about $20 per month in interest. So $20 per month for four years will add about $1000 to your original loan balance by the time your graduate. And, if you have the interest capitalized this will only increase.
So, looking at the big picture, four years of school you take out as much Subsidized Stafford loans you can. You also take out some unsubsidized loan to help cover tuition costs. You have $17, 125 in subsidized Stafford, and $10,500 in unsubsidized Stafford:
Scenario #1 (you paid the interest monthly for 4 years)
Total loan debt: $27,625
Monthly payment: $318/month for 10 years
Total interest paid $10,535
Scenario #2 (you did not pay your interest)
Total loan debt: $29,695
Monthly payment: $341/month for 10 years
Total Interest paid $11,315
As you can see, it is wiser to pay the interest monthly if you can afford it. If you cannot afford it, you can make up for it later by paying and not taking the full 10 years to pay the loan. Federal student loans have no prepayment penalties, so the sooner you pay them off, the less you will end up paying in interest.
So, with all this information what does Stafford Loans mean to you? Let me tell you what it means to me.
- Save money
- Ten-year loan term
- Affordable monthly payments
- Fixed Interest Rate
- Forgiveness potential
- On time payment incentives
- Regulated by the Federal Government
- Defer your loan payments while in school
So do your homework and research. Now what you need and know how to go about getting it. It is your future, go into it with a bang of knowledge.
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