What You Need to Know If You Are Taking Loans to Finance Your Education

Education is a Huge Investment, So Learn as Much as You Can about Financing Options

If you’re looking to finance a college education you should realize that there are two types of Stafford loans available for students. There are subsidized and unsubsidized Stafford loans. The essential difference between the two loans is how much interest is accrued during your college years. Education is a big investment, and you will want to know as much as you can about your financing options before you sign the student loan paperwork.

What Are Subsidized Loans?

Subsidized loans are awarded based on financial need, which is defined using aggregate household income and other considerations. Unsubsidized loans are not awarded based upon financial need. If you will be unable to finance your education without taking at least some student loans, then you will definitely benefit from this crash course in student loans.

Subsidized vs. Unsubsidized

Let’s clarify the differences between subsidized and unsubsidized loans. For subsidized loans, the federal government “subsidizes” the loan so that you do not have to pay interest until your repayment cycle begins. In addition, the government will subsidize the deferment period so that interest will not compound.

On the other hand, unsubsidized loans accumulate interest from the time the loan is disbursed until the balance is paid in full. While you are pursuing your education, interest is accruing. The interest works against the borrower because interest will have to be paid on the interest of the loan. Basically, if you have $30,000 dollars of unsubsidized loans your freshmen year, your loan will be much larger when you reach graduation because the interest is added onto your principal.

Loans Do Need To Be Paid Back

You may be asking yourself when exactly you must begin to repay you student loans that you needed to finance your education. You have a six month grace period after your graduation. Subsidized loans will not accrue any interest during this period. However, unsubsidized loans will accrue interest but you are not required to pay the interest until after your six month grace period.

For The Many Who Must Pay Their Own Way…

For those students that do not have their education financed 100% by a relative, you will likely have to acquire some type of student loans. Preferably, you can get all subsidized Stafford loans so that interest is not accumulating while you are a full time student. If you have unsubsidized loans, then you might want to consider paying the interest of your loan while you are full time student. It sounds like a lot of money to pay while pursuing your education, but it may be prudent to pay a little interest now instead of a lot more later.