The hefty costs of college tuition make paying for college education nearly impossible for a number of students and their families. For students who graduated in 2008, more than 65% were leaving school with debt. To help make college education more affordable, the government offers a wide variety of loan programs. Some loans programs available include Perkins loans, PLUS loans and Stafford loans, wherein Stafford loans can be either subsidized or unsubsidized.
The Difference between Stafford Subsidized and Unsubsidized Loans
Before talking about the difference between them, it is necessary to understand what a Stafford loan is. Backed by the federal government, Stafford loans offer funds to help qualifying students enrolled in accredited U.S. institutions of higher education to finance their education. These loans are available both subsidized and unsubsidized. The main difference between them is that subsidized loans require a demonstration of financial need.
Though government issued, both of these loans have an interest rate fixed at 6.8%. Speaking of the interest, it is another major difference between them. The interest on a subsidized Stafford loan is paid by the federal government when the borrower is enrolled in school, during a 6-month grace period and during authorized deferment periods.
For unsubsidized Stafford loans, borrowers need to pay all of the interest that accrues even if when they are in school or during the grace and deferment periods. However, borrowers don’t have to pay interest while they are in school. That is to say, the interest can be deferred throughout the enrollment. Unpaid interest will be capitalized and added to the loan balance.
Another difference between them is the borrowing limits. In general, unsubsidized Stafford loans have a higher borrowing limit, compared to subsidized ones. Below are the detailed borrowing limits for them.
The borrowing limit for subsidized loans:
- Undergraduate students: up to $3,500 in the first year, $4,500 in the second year and $5,500 in the third year
- Graduate/professional students: up to $8,500 each year
The borrowing limit for unsubsidized Stafford loans:
- Undergraduate dependent students: up to $5,500 in the first year, $6,500 in the second year and $7,500 in the third year
- Undergraduate independent students: up to $9,500 in the first year, $10,500 in the second year and $12,500 in the third year
- Graduate / professional students: up to $20,500 each year
Perkins Loans
Actually, Perkins loans are also a type of government subsidized loans. Like subsidized Stafford loan, these loans are also need-based, available to help American college students in funding their post-secondary education. As this type of loans is subsidized by the government, interest does not accrue until borrowers begin to make repayment.
The grace period for Perkins loans is 9 months, so borrowers can begin to pack off their loans in the 10th month upon their graduation. As for the interest, these loans carry a fixed interest rate of 5%, with a 10-year repayment period.
PLUS Loans
Another federal unsubsidized option is PLUS loans. This type of loans is available to graduate / professional students and parents of students enrolled at least half time in programs at eligible participating post-secondary institutions. The interest rate on such a loan is fixed at 7.9% and charged from the date of the first disbursement until the loan is paid off.
Without the financial need, the eligibility of these unsubsidized loans is on the base of the parents or graduate students who don’t have an adverse credit history. Be noted that if the loan is taken by a parent of student, it becomes a commitment by the parent instead of the student.
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