When you are trying to take the next step in advancing your education, how you will fund that education can be the furthest thing from your mind. Many financial aid departments will tell you that you are getting a variety of funding, including subsidized student loans. Not knowing what they are talking about, but understanding that you must sign on the dotted line to attend school, you simply nod your head and agree to the funding terms.
Unfortunately, most financial aid departments don’t attempt to go into great detail when helping you arrange for your education. Their one and only goal is to get you the funding you need so that they can earn more tuition for their school. They are not concerned with your needs, what interest you may pay, or what type of loans you get.
Subsidized student loans are the best type of loan to get. These loans do not have to be repaid until you graduate school. Additionally, you do not pay any interest until you have graduated-the government pays it for you.
All of your student loans will likely come with an agreement that as long as you are in school you do not have to make payments. However, not all of these are subsidized loans. Many of these loans are unsubsidized loans placed on an academic deferment. With these loans you rack up interest even while you are in school. The only way to keep these loans in check is to pay your interest monthly throughout your academic career.
Another thing that may confuse you is consolidation. Subsidized student loans cannot be consolidated until you graduate school. However, since you do not have to pay on them at all and you do not accrue interest until you graduate, you really have no need to consolidate them.
One way you can tell if a loan is unsubsidized is whether or not a credit check was required for the loan. Most subsidized student loans do not require a credit check, because they are federally backed and loaned through federal programs. However, unsubsidized loans may also be granted without a credit check, although interest rates on these loans may be higher.
The best way to tell if a loan is unsubsidized or subsidized is how much you can borrow. There is a fairly strict cap on how much you can borrow per year in subsidized loans. As a result, most people end up with a combination of the two loan types. This is where the confusion usually comes in. However, if you know these facts about subsidized student loans you will have a fairly good understanding of the breakdown of your student loan debt.
By: Joe Eitel
In most cases, as soon as a student gets out of college, he or she is immediately confronted with instant debt – in addition to anything he or she has accrued during four (or more) years in college. Unless a student has been paying interest on subsidized loans during their enrollment in school, and thus know a little bit of what to expect six months after graduation, then the oncoming burden of repaying financial aid starts to weigh on the mind about six months before graduation. The transition between graduation and What Comes Next – because, in a lot of cases, whether graduating from undergraduate school or graduate school, a student just needs some time to not feel so burned out – can be very worrisome. The knowledge of immediate debt does nothing to make it any easier.
Loan consolidations, however, can help make it less overwhelming. While it is true that federal loan repayments are renowned for their flexible repayment options, federal loans are not necessarily the only loans a student has to pay back, and since they are likewise well-known for their generally low interest rates, it only makes sense to be able to make sure that it remains a flat amount. After all, with some of those federal loans, the payments still raise over time. Furthermore, there are any unsubsidized federal loans to consider – the unsubsidized Stafford Loan, for example. Again, unless a student began paying during his or her enrollment instead of deferring the interest to the principal, then lowering the monthly payment, which can be so much higher than that of subsidized student loans, is an excellent option. Not only that, but with some consolidation companies, even the lower payments can be deferred for up to three years, should the need arise. This is ideal for graduates who cannot get a job right away, or for those who intend to go straight to graduate school.
Students have the option of student loan consolidation as early as right after graduation – some companies even offer special deals if students consolidate their loans before the sixth month grace period after graduation ends. Many companies also offer flexible repayment options and students are not penalized if, at any point, they get their loans paid off early, meaning that when they get into better financial straights and are able to pay more, they can increase their payments so that the loans are paid off sooner than anticipated in the initial consolidation plan.
Student loan consolidation can relieve recent graduates of an incredible amount of worry and anxiety. Deciding what they want to do with their lives after college is one of the most daunting experiences of attending college. Like entering into university life, exiting from the college experience is a time of extreme transition and change. Financial worry adds to the burden, and student loan consolidation for federal loans can ease that burden tremendously. There is really nothing to lose, because even if a loan consolidation plan offers payments at a rate which mean it will take years to pay back federal loans, there is no penalty if a student is able to pay the amount in full, ahead of time.
By: Gary Marjani