Subsidized vs Unsubsidized vs PLUS loans: What are the differences?
College is expensive and in most cases, students will need to find some sort of way to fund their education. Federal loans are one of the more popular options when it comes to doing so. Here are some of the different types of federal loans and their differences.
Subsidized and Unsubsidized loans
First, let us define what these are and how to qualify for each one. Also known as Stafford loans, subsidized and unsubsidized loans are popular, federal loans that students may take out for college. Subsidized loans are available to those who are undergraduate students with financial need.
Your college will determine how much you may borrow. Interest, which is the amount you owe to a lender for using their money, will be covered by the U.S. Department of Education.
However, the interest is only covered under the following conditions:
While enrolled at least as a half-time (part-time) student
For the first six months of leaving school (includes graduation). This is also known as a grace period
During a deferment period
Unsubsidized loans are available to those who are either undergraduate or graduate students, and there is no need to have financial need to qualify. The amount to borrow for these loans are determined by the cost of your tuition and any other financial aid you may receive. Unlike subsidized loans, however, unsubsidized loans will require you to pay interest.
It is important to note that if you opt to not pay the interest while in school or during grace/deferment/forbearance periods, the interest will be added to your principal amount. The interest rates for both subsidized/unsubsidized loans for undergraduates is 2.75%. The rate for graduates is 4.30% and only applies to unsubsidized loans.
PLUS loans
PLUS loans are another way for students to borrow money for college. However, unlike Stafford loans, this loan is directly sent to the parents of the student. The student will still be responsible for paying the debt owed. The interest rate is fixed at 5.30%.
All three of these federal loans can be filed through the Free Application for Federal Student Aid (FAFSA) form.
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