Unsubsidized Student Loan

By: EconomyWatch Content   Date: 1 December 2009

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An unsubsidized student loan is an appropriate college financing option for those whose grade point average or income level does not meet the criteria for obtaining a subsidized government loan. Most lenders take into consideration a student’s credit rating while granting subsidized student loans. However, even high risk candidates can acquire an unsubsidized education loan, although the interest rates offered tend to be higher than average. 

Unsubsidized Student Loan: Considerations

An important limitation of an unsubsidized student loan is that the interest accrues immediately after obtaining the loan and the borrower’s liability builds-up while pursuing a degree. This is not the case with federal subsidized education loan, wherein the federal government bears the burden of interest payments during the term of the degree. Additionally, most unsubsidized student loans are accompanied by various loan fees, such as insurance and origination fees, which are added to the monthly disbursements.

Despite these drawbacks, an unsubsidized student loan is a good education financing alternative due to the following reasons:

·        Simple application procedure: The application procedure for an unsubsidized student loan is a relatively simple as compared to a subsidized loan, which requires a detailed FAFSA form and the borrower needs to undertake entrance and exit counseling. In fact, many private unsubsidized education loans are offered in association with colleges and universities, whose counselors provide complete assistance from loan procurement to payment.

·        Interest deferment option: Most lenders allow borrowers to defer interest payments until graduation, although it continues to accrue. This is an excellent alternative for borrowers with limited funds apart from the loan. When a borrower chooses to defer interest, it gets capitalized and added to the loan balance. Payments generally become due after six months of graduation, enabling students to save funds towards loan payments more effectively.

·        Higher loan amount: Depending on the credit rating, a borrower can qualify for higher loan amounts than those offered under subsidized student loan programs. This helps to cover more education expenses and avoid multiple loan applications and loan consolidation issues.

Additionally, unsubsidized student loan programs accompany several repayment options, similar to subsidized loans. Most unsubsidized student loan programs enable borrowers to spread payments over 10 to 25 years, depending on the borrower’s need and financial capacity. However, benefits such as loan deferment and forgiveness, which are characteristic of federal subsidized loans, are absent in private unsubsidized education loan programs.


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