Stafford loans are broken into two categories subsidized and unsubsidized. The difference is that for subsidized loans the government subsidized the student by paying the interest until the student stop going to school at least part time. With the unsubsidized loan the student must pay the interest accrued during school. Therefore subsidized loans, if you can get them, are a better deal than unsubsidized loans. Even if this is not enough to convice you subsidized loans have an interest rate of 5.6% this year for undergraduates vs 6.8% for unsubsidized loans or subsidized loans for graduate students.
Therefore why would someone get a unsubsidized loan? Mostly because anyone who fills out a fafsa (free application for federal student aid) can get one. This means that no first time student should be unable to get this aid. Or maybe the aid one gets is not enough to pay for the expenses.
This chart shows how large a loan a student may potentially get and how much may be subsidized.
|Dependent student||Independent student|
|1st-year undergraduate||$5,500 (maximum $3,500 subsidized)||$9,500 ($3,500)|
|2nd-year undergraduate||$6,500 ($4,500)||$10,500 ($4,500)|
|3rd- and 4th-year undergraduate||$7,500 ($5,500)||$12,500 ($5,500)|
|Graduate/professional||NA (All graduate and professional students are considered independent.)||$20,500 ($8,500)|
If a student is getting aid from the university or college in the form of a tuition waver or scholarship, the amount of student loan aid can be decreased. Thankfully the unsubsidized loan aid will be decreased before the subsidized loan aid.
This is in reverse if the student or parent makes additional income. It is always better for a student to get a scholarship or grant than a job off campus. Later articles will cover working on campus and why that is better than a job off campus.