Subsidized/Unsubsidized Stafford Student Loans
For those students who have been granted eligibility, the subsidized Stafford Student Loan is recommended. This loan can be used to cover a portion of the student’s cost of education. The primary benefit is that the U.S. Department of Education pays the interest that accrues on this loan while the student is in school or during any loan deferment period. That means you are not paying the interest on you subsidized staffard student loan. I would call that free money.
The student would need to prove that he or she is in school and enrolled at least half time, based on the school’s definition of half time status. The Department of Education will cover all interest charged during the period the student is enrolled at least half time and for the six month grace period given to the borrower after graduation or separation (ceasing to be enrolled at least half time). What’s more, if the borrower, while in repayment, should need to take out a deferment such as an unemployment deferment or because of a return to school (in-school deferment), the government would pay the interest during those periods, as well. Wow!
There are many reasons a student might qualify for a subsidized stafford student loan. One might be if a student’s parents’ financial means are far less than what is required to cover their child’s education. However, it is important to note that the FAFSA must be completed before receiving any federal student loans. The federal government uses a universal formula to calculate a family’s financial ability to assist in paying for their child’s education. A student would not be eligible to receive subsidized student loans simply because their parents refused to pay for a specific college for one reason or another (i.e., location, size, program options, religious affiliation, etc.). This student would have to find other options to pay for college such as college scholarships and/or taking out a private student loan.
Unsubsidized Stafford Student Loans differ from subsidized Stafford Student Loans in that the student is responsible for all interest that accrues on the loan from the time of disbursement through repayment of the loan. Students still need to be deemed eligible for unsubsidized Stafford Student Loans as well however they are usually granted to most students with a maximum borrowing cap.
Interest accrued on an unsubsidized Stafford Student Loan can be paid at any time by the borrower while in school or during a period of federal student loan deferment or federal forbearance to help lower the students interest capitalization and monthly payments.
Capitalization occurs when a borrower chooses the option to allow the interest to accrue and opts to have the interest added to the principal amount of the unsubsidized student loan. If you choose not to pay the interest as it accrues and allow it to be capitalized, you will not have to make loan payments while in school, but will have a larger amount of loans to pay off following graduation.
Above we have explained in detail your option on a Stafford Subsidized/Unsubsidized Student Loan. It is up to you to make the decision as to what meets your financial needs best.
