A Unsubsidized Loan is a type of financial aid that is not based on your financial need. You are responsible for paying the interest on a Unsubsidized Loan while you are in school and during your grace period.
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What is a Unsubsidized Loan?
A unsubsidized loan is a type of financial aid that is not based on financial need. This means that the loan does not have to be repaid until after graduation, and interest will accrue during the time the student is in school. Unsubsidized loans are available to both undergraduate and graduate students.
How Unsubsidized Loans Work
Federal unsubsidized loans are available to undergraduate and graduate students. Unlike subsidized loans, unsubsidized loans accrue interest from the time the loan is disbursed until it is paid in full. The Department of Education (DOE) does not pay the interest on your behalf as they do with subsidized loans.
You are not required to make payments on your unsubsidized loan while you are in school; however, you can choose to do so if you wish. If you choose not to make payments while you are in school, the interest will be added (capitalized) to your principal balance when you enter repayment. This means that you will pay interest on the interest that has accrued, as well as the principal of the loan.
Unsubsidized loans first became available to students attending college on at least a half-time basis on or after July 1, 1993.
The Benefits of Unsubsidized Loans
The main benefit of unsubsidized loans is that they are available to undergraduate, graduate, and professional students regardless of financial need. This means that even if you don’t qualify for need-based aid, you can still receive an unsubsidized loan.
Unlike subsidized loans, which are awarded based on financial need, unsubsidized loans are not need-based. This means that the government does not pay the interest on your loan while you’re in school or during other periods of deferment.
With an unsubsidized loan, you are responsible for all the interest that accrues on your loan from the time the loan is first disbursed until it is paid in full. If you choose not to pay the interest while you are in school or during other periods of deferment, your interest will accrue and be capitalized (added to the principal balance of your loan). This will increase the total amount you have to repay because you will be paying interest on a larger principal balance.
The Drawbacks of Unsubsidized Loans
Unsubsidized loans are not based on financial need, so you may have to pay a higher interest rate than you would for a subsidized loan. In addition, you are responsible for paying the interest on unsubsidized loans from the time the loan is disbursed until it is paid in full. If you choose not to pay the interest while you are in school or during other periods of deferment or forbearance, your interest will accrue (accumulate) and be capitalized (added to the unpaid principal balance of your loan). This will increase the amount you have to repay.
How to Apply for a Unsubsidized Loan
In order to apply for a unsubsidized loan, you will need to fill out a FAFSA form and list the school you are attending. After the school receives your FAFSA form, they will send you a financial aid package that will include the unsubsidized loan. You will then need to fill out a Master Promissory Note, which is a contract between you and the Department of Education that states you will repay your loan.