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Whether you’re already in college, or a rising freshman, financial aid and loans can be a bit tricky to understand. According to The U.S. Department of Education, the Federal Direct Loan Program is the largest federal student loan program. The two most common types of loans under this program are Direct Subsidized Loans and Direct Unsubsidized Loans (these tie into the Stafford Loan Program). These terms are typically unfamiliar to the average student, so here’s a breakdown of what they mean for you:

Both Types of Loans

To be eligible for either a subsidized or unsubsidized loan, you must be a U.S. citizen (or eligible non-citizen) who is working toward a degree or certificate in an eligible program. You must have a high school diploma, GED, or equivalent, and must maintain good grades. You also cannot have a drug offense or owe repayment on a federal grant. Essentially, you must be a good seed devoted to their education in the U.S.

Federal Direct Subsidized Loans

The main scoop: this type of loan is only available to undergraduate students, and is based on your financial need as determined by the FAFSA.

Why It’s Good

  • Your interest will be paid! During any amount of time where you are in school as a half-time student, or when you’re authorized to defer the loan, the government will pay your loan’s interest.
  • You will not have to start paying back this loan until 6 months after graduation (or 6 months after you lose your half-time student status). This gives you a temporary grace period to find a job so you can make money to pay off the loan.
  • Students are offered up to $23,000 upon graduation.
  • As long as you’re enrolled in an approved program or educational institution, it’s easy to keep your subsidized status.

The Tricky Side

  • This loan requires you to be a half-time student, which typically means that you’re taking 6-11 credits. If you’re only taking 1 or 2 classes that equal 5 or fewer credits, you may not be eligible for this loan.
  • Your school determines how much you’re allowed to borrow, so that the amount will not exceed your financial need.
  • Not available to graduate students.
  • Loan fees are automatically deducted from each disbursement.

Federal Direct Unsubsidized Loans

The main scoop: This type of loan is available to both undergraduate and graduate students, and does not have a requirement of demonstrated financial need.

Why It’s Good

  • Payments can be deferred until after graduation with a 6-month grace period.
  • If you were not eligible for a subsidized because you did not have enough financial need, you can still borrow the same amounts with an unsubsidized loan.
  • It’s available for graduate students.
  • Students are offered up to $23,000 upon graduation.

The Tricky Side

  • You are always responsible for paying the interest on an unsubsidized loan. This means that interest is not paid by anyone while you are enrolled in school, so your interest is going to stack up from the day your loan is disbursed to the day it is paid in full. Interest will still accumulate if you take a 6-month grace period after graduation. In the end, you will end up paying more than the amount the loan was initially for.
  • Your school determines how much you’re allowed to borrow based on the cost of attendance and the other financial aid you may qualify for. The amounts you can borrow also depend on your grade level and status as a student.
  • Loan fees are automatically deducted from each disbursement.

Which is Better?

Whichever loan is right for you really depends on your status as a student, and how comfortable you are with interest

rates. If you are an undergraduate student who filled out the FAFSA and demonstrates financial need, a subsidized loan is definitely the more fiscally plausible choice. If you are an undergraduate student who does not have significant financial need or a graduate student, an unsubsidized loan may be your only option. If you are eligible for either, I would recommend avoiding unsubsidized loans with high interest rates as much as possible. These interest rates can creep up on you and make your loan cost thousands more than originally intended.

As college students, I think we can all agree that grants and scholarships are the much more favorable option of financial aid, but when these options are exhausted, it’s good to be informed about the types of loans offered to you so that you can make an educated decision before signing off for the financial help!

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