March 22, 2007
Subsidized Loans Vs. Unsubsidized Loans
As you now already now, Stafford Loans are Federal Aid awarded to students based on financial need. These are loans and not grants so they do need to be repayed to your lender, which of course means they accrue interest. What most students dont know is that there are two types of Stafford Loans, Unsubsidized Loans and Subsidized Loans. Subsidized Loans are awarded to the students with a greater financial need for the loan. The government pays interest on these loans while the student is in school. This means that the student does not begin accruing any interest on the loans until 6 months after graduation.
Unsubsidized Stafford Loans begin accruing interest from the date the loan is disbursed to the school. Although repayment of Stafford Loans is deferred until the student graduates from school you do still have an option of making interest only payments while in school. This arrangement can be made directly with your lender in order to save on interest paid over the long run. If you chose to defer your interest until you graduate the interest will be capitalized. This means that the interest will be added to the principal balance of the loan and you will then continue to accrue interest on the total balance.