When I first started out in college I had no idea about all the different types of loans. To be perfectly honest I really didn’t know much of anything about loans except that people get them when they buy a house or a car. Even that I only knew because my sister had both. (Yes I know I wasn’t very knowledgeable when I started college). For the first couple years I had no problem paying for my classes because I had money saved up and I had a couple small scholarships. After that I realized I was going to have to get a loan.
I was offered both a subsidized and an unsubsidized loan from my university and I wasn’t really sure which one I should accept. Of course neither one was going to pay for my entire amount due but I knew that I was going to need all the help I could get. That’s when I started doing some research and looking into the different types of loans. I wanted to figure out which one of these loans was better than the other because I knew one must be or both wouldn’t be offered.
A subsidized loan is one that the government helps you with. With these type of loans you typically don’t get as much money from the government. You’re going to be offered a smaller amount than you will be with an unsubsidized loan which can turn some people off without really even considering it. But you’ll want to look closer at some of the information available about these loans before you ignore it for being too small. There are some great benefits to getting a subsidized loan instead of an unsubsidized.
The biggest benefit is that you aren’t going to have to pay any interest on a subsidized loan during the entire time that you are enrolled in school at least half time. So however long you’re in school you’ll be able to get away without paying anything for the loan and you’re also not going to have to pay any of the interest that would normally accrue on that same loan. So if you borrow $5,500 like I did then six months after you stop taking classes at least half time you’re still only going to owe $5,500.
I know when I looked at the options and realized this benefit I was definitely happy. I liked the idea of paying less money when I was done borrowing the money. I knew it was going to be better for me in the long run because I would be able to save and I wouldn’t have to worry too much about how much interest I was accruing. I could keep going to school as long as I wanted or needed to and the total owed at the end was going to be exactly the same as what I borrowed.
It may seem like, if you can get a subsidized loan without having to pay interest it doesn’t make much sense to go unsubsidized right? Well that’s not always true. See the subsidized loan is never going to be enough to pay all of the expenses that you have. That’s just not the way the government works. They’re only going to give you a small portion of what you need as a subsidized loan because they have to pay the interest on that loan and they don’t want to pay a lot of money for you to go to school.
The benefit of an unsubsidized loan is that you can get a lot more money. Now most people will combine the two loans and get the most money they can because this is how you actually afford to pay for your schooling. If you do this you’ll be getting the larger portion of your loan through an unsubsidized scenario and you’ll need to remember that interest (while not due for payment until six months after you graduate) is going to start to accrue the very first day that you sign those loan papers and that’s money you’ll have to pay once the loan comes due.
Now I was actually pretty lucky because I didn’t have to take out an unsubsidized loan at all. I was able to come up with the rest of the money that I needed through other means. But there are a lot of people that do need to take out the money. The important thing is to weigh out the pros and cons of each and determine what your needs are for payment purposes. Once you’ve determined all of that you’ll be able to see which one (or both) of these you’re going to need.
Just to cover all the bases we’ll include this small section. You can choose to get a personal loan instead of either one of the federal loans that we mentioned above. In these instances it’s going to be entirely up to your credit history and your loan provider how much your interest rate is going to be and how big your payments will be. You’re also going to start paying interest and making payments in general right from the start. The benefit is that you can generally get as much money as you want and you’ll probably be able to get a decent interest rate as well.
Take a look at the rates for each of these loans and how much money you’re going to need. All of these things will weigh into your decision just like they did for me. I know I was able to make it with just the subsidized loan but not everyone is. Remember just because the unsubsidized is going to cost you more money doesn’t mean that it’s necessarily a bad idea, it’s just another factor to consider when you decide to sign those papers and get your loans. Just make sure you’re doing what you need to do in order to get into your university. When your loan comes due just make sure you check out this article on repayment options.