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The Difference Between A Direct Subsidized And A Direct UnSubsidized Student Loan.

By: Patrick Mansfield | US Consumer Finance



Students who need financial help can choose either Direct subsidized Loans or direct unsubsidized Loans. When comparing those two types of federal student aid, applicants find that subsidized student loans offer somewhat better terms. 

Direct Subsidized Loans Explained

Undergraduate students who need financial assistance may be eligible for Direct Subsidized Loans. The loan amount is determined by the school of attendance, and the disbursed amount cannot be more than the student's financial need. 

The accrued interest on a subsidized loan is paid by the U.S. Department of Education during:

  • A deferment period, or a loan payment postponement.
  • The grace period, which is the six months after a student leaves school.
  • The student's time in school as long as the student attends half-time or more.


Those who obtain subsidized loans dispersed from July 1, 2012 to July 1, 2014 must pay all of the interest that accumulates during the grace period. Those who do not pay the grace period interest will have the interest applied to their principle loan amount, known as being “capitalized.”

Direct Unsubsidized Loans Explained

Unlike subsidized loans, both undergraduate students and graduate students can get Direct Unsubsidized Loans, and students are not required to prove their financial need. The loan amount is determined by the amount of the student's other financial aid and the cost of attending their chosen school. There are no break periods from paying the loan's interest. Those who do not pay toward the unsubsidized loan's interest during deferments, grace periods and school attendance will have their loan's interest accumulate and become capitalized.

Eligibility Requirements for Both Direct Loans

In order to receive either kind of direct loan, students are required to maintain at least half-time enrollment at one of the U.S. Department of Education's Direct Loan Program participating schools. The program of enrollment must lead to a school-issued certificate or degree. Undergraduate students who have financial need are the only students who are eligible for Direct Unsubsidized Loans. Graduate, professional degree and undergraduate students are eligible for Direct Subsidized Loans regardless of their financial need. 

Direct Loan Time Limits

New borrowers who receive Direct Subsidized Loans on or after July 1, 2013 are limited to the number of academic years they can get this type of federal student aid. The time restrictions are not applicable to Direct PLUS Loans or Direct Unsubsidized Loans. Direct loan recipients are limited to receiving funds for 150 percent of their program's published length, which is called the the maximum eligibility period. Students can usually find their particular program of study's published length in their school's course catalog. 

For instance, students who are working toward the completion of a four-year-long bachelor's degree program can only receive a Direct Subsidized Loan for six academic years. This time limit is calculated by multiplying four years and 150 percent, which equals six years. Those who are in a two-year-long associate's degree program can only receive a subsidized loan for three years. This time length restriction is calculated by multiplying two years and 150 percent, which equals three years. 

Since the maximum eligibility period directly correlates to the student's program length, this eligibility period changes if the student switches to a degree program of a different length. If the student has a Direct Subsidized Loan under one program, and he switches to a new program, the time length for the subsidized loan carries over to the recalculated maximum eligibility period under the new program of study.


 



    




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