Student Loan Unsubsidized

By: EconomyWatch Content   Date: 1 December 2009

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Student loans can be broadly categorized into subsidized and unsubsidized loans. Subsidized student loans are those on which the federal government bears the interest while the student is pursuing a degree. Conversely, an unsubsidized student loan program is one where the borrower is responsible for interest payments, which accrue instantly after the loan is sanctioned, during the schooling.

Clearly, a subsidized loan is more economically beneficial. Nonetheless, an unsubsidized student loan is a good education financing alternative, given that obtaining a subsidized loan is harder. Subsidized student loan programs take into consideration the following parameters for short-listing candidates:

·       Income level, since they are basically intended for students from finally weak families

·       Grade point average

·       Extracurricular participation 

Student Loan Unsubsidized: Interest Payment Options

Although interest accrues on unsubsidized student loans instantaneously, borrowers need not commence repayments while pursuing a degree. Most unsubsidized education loans come with the option of deferring the loan interest. Under interest deferment plans, payments towards the interest are capitalized as a part of the loan balance. This enables a borrower to make repayments, including principal and interest, collectively. Typically, under such agreements the payments commence after six months of obtaining a degree, allowing the student sufficient time to accumulate funds. 

Student Loan Unsubsidized: Repayment

Besides a less stringent approval procedure, multiple payment options are another reason to consider unsubsidized student loans. A borrower can select from four education loan repayment options according to their needs, income and desired level of flexibility:

  • Standard monthly payments: Under this, a borrower has to make fixed monthly payments, generally for a period of 10 years.

  • Extended-standard monthly payments: This involves fixed monthly payments for a longer period, generally 25 years. Although the ultimate interest obligation is higher under this program, it enables a borrower to benefit from much lower monthly payments.

  • Graduated-payments: Under this, the initial monthly payments are small, which increase gradually, taking into consideration a projected raise in the income level.

  • Income sensitive payments: Monthly payments under this program are in accordance with a borrower’s income level. This implies that when the income increases, so does the monthly payments. Conversely, when the income level reduces, the monthly payments are also lowered.

Additionally, most lenders allow changing programs, creating greater flexibility for unsubsidized student loan borrowers.


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