Everyone agrees that getting a federal loan is a good thing. But the most common misconception is that "the government gives the loan directly to the student and they don't have to pay it back after they graduate." This may sound confusing, but many people actually think this is how it works.
Most of the time, a federal loan is given through an institution. This institution is usually a well-known bank that the student already knows. This loan comes in two forms: the subsidised student loan and the unsubsidized student loan. So, how is a loan that is not subsidised different from one that is? Technically, there isn't much difference between a subsidised student loan and an unsubsidized student loan.
Similarities
First of all, the US Department of Education backs both subsidised and unsubsidized student loans. This can be done directly or through agencies that offer guarantees. Both types of loans are available to all students, but there may be some differences in how the loans are subsidised. But there is no difference based on credit scores or other financial issues. The only difference is based on how much money the family makes.
Second, there is a grace period of six months for both subsidised and unsubsidized student loans. Almost all types of student loans come with a grace period like this. This would mean that the student wouldn't have to pay until six months after he graduated. Another option would be for the student to start working part-time three months after becoming a less-than-full-time student without graduating. This would mean that the student would start working before he or she finished their studies. The most you can borrow with either type of loan is the same.
Differences
The interest is what makes the difference. For a subsidised student loan, the government promises to pay the moneylender's interest while the student is in school. For an unsubsidized student loan, the student pays for it himself, but the amount varies almost every year based on how much money he has. For example, if a student borrows $2,600 a year, he has to pay back $2,600 plus interest. He only pays $2,600 for a subsidised one.
Even though the only difference is the interest rate, it is a big deal because it can make or break your monthly budget, especially if you just got out of college and are looking for a good job. So, try to get a subsidised loan whenever and wherever you can. It will make a big difference when it comes time to pay back the loan.
