Subsidized loans save you significant money on interest. Following the completion of the October study program, students and parents eagerly await an offer of financial assistance from future faculty.
These awards can often mean the difference between being able to afford a preferred school and having to attend a second choice. Although the final decision should never be based solely on money, it plays a key factor. One component that should also be considered is the amount of borrowing involved.
You may see something like a direct subsidized loan
A direct default loan, or a PLUS loan. These are different types of federal student loans. It is important that you understand the differences between them as they can affect the amount of money you will have to pay out along the way.
Subsidized and non-repayable loans are federal student loans for qualified students designed to help cover the cost of higher education at a four-year college or university, community college or commerce, career or technical college.
In a direct subsidized loan, the federal government pays the interest while the student is in college or while the loan is deferred.
This type is very different from unpublished loans, where interest begins to accrue as soon as the loan is withdrawn. Although you will be able to defer payment of this interest until after graduation, you are still responsible for paying off the entire amount of interest that is being built while you are in school.
How long can I qualify for a direct subsidized loan?
Directly subsidized loans are generally available to students with more financial needs. Your school determines the amount you can borrow based on the information provided in yours. The amount available cannot exceed your financial need.
If you are a debtor for the first time on or after July 1, 2013, there is a limit to the maximum number of school years you can receive directly with subsidized loans. The general rule is that you can receive subsidized loans for 150% of the established length of the current school program. It’s called your “maximum eligibility period”.
For example, if you completed a master’s degree in a four-year program but changed your knowledge and needed more time before you could graduate, you could receive subsidized credits for only six years of schooling. If you go into your seventh year, you will not be eligible for further subsidized loans. After that moment, the government will stop paying interest on the loans while you are at school.
How much can I borrow with a subsidized loan?
Your college will determine the types of credits you qualify for during the school year. Your loan package is based on whether you are a dependent or an independent student, in which year you reside and other financial aid received. Maximum availability is subject to change every year.
How Do I Get My Subsidized Loan?
Your university will send you information on how to accept the loan amount using the financial aid package. You will probably need to complete a Master Promissory Note (MPN) that outlines the terms of the loan and repayment and may need to undergo inbound counseling to ensure you understand your obligations when you take out a loan.
When the loan is ready for disbursement, the school will first draw the necessary amounts for tuition, fees, rooms, and board. If you have money left over, you will be paid back for your educational needs, such as buying books or other expenses.
What if I don’t need the amount I’m offered?
If your loan amount is more than you need, you can cancel all or part of it by reaching the financial aid office. Be sure to review your promissory note, as there are often specific deadlines and forms that you will need to sign to cancel any portion of your loan.
Disbursement payments will begin upon graduation or when you cease to be a full-time student. Keep only what you need, so plan carefully so your monthly payments are no more than your future income.