What is an unsubsidized loan?

issuing time: 2022-04-07

An unsubsidized loan is a financial aid award that does not require the borrower to demonstrate financial need. The interest on an unsubsidized loan accrues from the time the loan is disbursed until it is paid in full. Borrowers are responsible for paying all accrued interest on their unsubsidized loans.

How does an unsubsidized loan differ from a subsidized loan?

Unsubsidized loans are not based on financial need, so they are available to all students. The interest accrues (accumulates) while you are in school and during your grace period, and is added to the principal amount of your loan when repayment begins. This means you will repay more than the amount you originally borrowed. Subsidized loans are based on financial need, as determined by the information you provide on your Free Application for Federal Student Aid (FAFSA®). Eligibility is also determined by regulations set forth by Congress and the U.S. Department of Education.

What are the interest rates for unsubsidized loans?

The interest rates for unsubsidized loans are generally lower than those for other types of loans. However, the interest rate will vary depending on the type of lender and the terms of the loan. For example, some lenders may offer a lower interest rate for a shorter term loan than they would for a longer term loan.

When do I have to start paying interest on an unsubsidized loan?

Assuming you're referring to federal student loans in the US:

With an unsubsidized loan, you are responsible for all the interest that accrues from the time the loan is first disbursed. If you allow the interest to accumulate (accrue), it will be capitalized, or added to your principal balance. Capitalization increases the amount of money you have to repay because now you're paying interest on a higher principal balance.

How much can I borrow in unsubsidized loans?

You may be able to borrow up to $20,500 in unsubsidized loans for your education each year. The actual amount you can borrow will depend on factors such as your cost of attendance, other financial aid you receive, and your eligibility for certain types of loans.

What is the grace period for unsubsidized loans?

The grace period for unsubsidized loans is the time during which you are not required to make payments on your loan. For most loans, the grace period is six months after you graduate, leave school, or drop below half-time enrollment. During the grace period, interest accrues on your unsubsidized loan(s), but no payments are due. You may choose to pay the accrued interest during the grace period or allow it to capitalize (be added to your principal balance).

Can I get a deferment or forbearance on my unsubsidized loan?

If you're struggling to make your student loan payments, you might be able to get a deferment or forbearance on your unsubsidized loan.

A deferment is when you temporarily postpone making your loan payments. If you qualify for a deferment, the government will pay the interest on your subsidized loans during the deferment period. For unsubsidized loans, you're responsible for paying the interest even while your payments are deferred.

A forbearance is when your lender agrees to temporarily suspend or reduce your loan payments. Like with a deferment, if you have a subsidized loan, the government will pay the interest on your loan during the forbearance period. But if you have an unsubsidized loan, you're responsible for paying the interest even whileyour payments are suspended or reduced.

If you can't make your student loan payments and don't qualify for a deferment or forbearance, consider other options like income-driven repayment plans or consolidation.

How do I repay my unsubsidized loan?

There are two ways to make payments on your unsubsidized loan: through a deferment or forbearance, or by making payments directly to your lender.

If you choose to defer or forbear your loans, you'll need to continue making interest payments on the loan. These payments can be made while you're in school, during your grace period, or during a deferment or forbearance. If you don't make these interest payments, they will be capitalized (added to the principal balance of your loan).

To make payments directly to your lender, you can do so online, by mail, or over the phone. Just be sure to include your name, address, account number, and the amount you wish to pay. You can find more information about repaying your student loans on the Department of Education's website.