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What is a Subsidized Loan? – Everything You Need To Know About It

What is a Subsidized Loan

What is a Subsidized Loan? – A type of loan in which borrower don’t need to pay interest where the interest is paid by the third-party.  These loans include mortgage loan and student loan.

If you are planning on going back to school, the subsidized loan can help you to save a lot of money.

These loans are available for undergraduate students with financial need; it is determined by your cost of attendance less expected family contribution and other financial aid.

The federal government provides subsidized loans depending on the student’s financial need when applying for aid through the FAFSA. One of the biggest benefits of this loan is that the U.S. Department of Education pays for any accrued interest during the period you are in school.

To get this benefit you need to enroll at last halftime. You will also get 6-months grace period after graduation; it means that any interest that accrues during your college career and 6 months afterward completely paid for.

After finishing the grace period you are required to make monthly payments of principal as well as interest.

Note: Remember subsidized loans are only available for undergraduate students.

What is a Subsidized Loan

What is a Subsidized Loan

Don’t require your credit history

As you already know you can take a private loan independently if you have a good credit history. Simply if you have a credit card or a car loan in your name. You have paid the bills of these things on time you will have a good credit score. You will be offered more loan options at lower interest rates.

An enrolled undergraduate with financial need is eligible to get the Federal Loan.

No co-signer is required

High school seniors and college student without a long credit history can qualify for a private loan. Generally, a parent or grandparent agrees to pay the loan balance if the student is unable to pay.

The Federal loan is not a credit based, so don’t require a co-signer, it means your family is not concerned about taking on the repayment responsibility.

Postpone the Federal Loan payment for up to three years

If you are not able to afford your payments temporarily, you have two options. You are allowed to postpone or lower your payment due to economic hardship for a total of three years.

The private student loans have fewer features. Some lenders will lower the interest rate or allow you to pay only the interest for a period of time but the whole amount.

Lower interest rates than a private loan

During the year 2015-16 school years, the interest rate for the federal loan is 4.29%. Whereas the rate of a private loan is twice or three times as much depending on the credit score or your co-signer.

Apart from this, the rates of the federal loans are fixed and they will remain the same during your entire loan term.

Interest on deferred subsidized federal loans is paid by the government

The students who have higher financial assistance to pay for school qualify for Federally subsidized loans. The government pays the interest on a loan when it is in deferment. In both cases, if you are in school or take a break from the payment.

Forgiveness Opportunities

A Federal loan can be dissolved if you participate in an income-driven repayment plan or working at a nonprofit/ government. The Public Service Loan Forgiveness program gives Federal loans after a period of 10 years.

Consolidate Federal loans without a good credit

If you have multiple federal loans, you can easily consolidate the same into one payment. The consolidation makes some loans eligible for Public Service Loan Forgiveness and income-driven repayment plans.

Avoid taking the extra risk of borrowing the maximum annual amount of Federal loan once you take out a private loan.

About the author

Richard K. Boyd

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