What is an Unsubsidized Stafford Loan?

Unsubsidized Stafford Loan

For high school students, the biggest challenge (besides becoming independent) is to be able to pay for a college. For this, a student would need to get a private loan or a Direct Loan from the Department of Education.

What is an unsubsidized Stafford Loan? An unsubsidized Stafford Loan is a federal student loan that is offered to certain students to cover the cost of college or career school. It is offered through the Department of Education’s Direct Loan Program and, unlike subsidized loans, students are responsible for paying the interest generated.

How does an Unsubsidized Loan Work?

If you are an undergraduate or graduate student, you can opt for an unsubsidized Stafford loan. Unlike subsidized loans, you do not have to submit a requirement that demonstrates your financial need.

Additionally, your school will determine how much money you can receive as a loan for each academic year.

However, there are both annual loan limits (amounts to be requested per year) and aggregates (the total to be borrowed for your undergraduate or graduate studies). These limits vary depending on the year of the school you are in and whether you are a dependent or independent student.

Once you receive the unsubsidized loan, and as we mentioned at the beginning, you are responsible for paying interest on each of the periods. In case you fail to pay the interest, the interest will accumulate, and which will be added to the principal amount of the loan.

In other words, you will end up paying more than you should.

Apart from interest, you must pay a fee to receive the unsubsidized Stafford loan. This loan rate is a percentage of the total amount that is deducted proportionally with each disbursement.

Are Unsubsidized Loans Bad?

No unsubsidized loans are not bad. Although subsidized federal loans seem to be an excellent option, unsubsidized Stafford loans are no longer bad to get just different (see differences in the chart below).

The main reason is that they are also student loans granted by the government. Unlike a private loan, they have low and fixed interest rates, in addition to providing the borrower with valuable benefits.

Another important aspect to keep in mind is that the interest rates between subsidized and unsubsidized loans are the same for undergraduate students.

However, for graduate students, these loans are slightly higher rates. Despite this, the fee to be paid will be the same for undergraduate and graduate students.

What is the Difference between Stafford Subsidized and Unsubsidized Loans?

There are 4 main differences between Stafford subsidized and unsubsidized loans:

However, the biggest difference between subsidized and unsubsidized loans lies at the moment in which interest is charged. When unsubsidized loans are disbursed, interest begins to accrue while in school and until the grace period ends.

How do you Qualify for an Unsubsidized Stafford Loan?

To be eligible to receive an unsubsidized Stafford loan, you must meet the following conditions:

  • Must be enrolled (at least part-time) at a school participating in the Direct Loan Program.
  • You must be enrolled in a program that offers a degree or certificate awarded by the school.
  • Undergraduate or graduate student.
  • Independent student.
  • Dependent student which parents can’t obtain PLUS loans.
  • You have no financial need to show.

Should you Accept Unsubsidized Loans?

If you are a student who does not meet the conditions to be eligible as a creditor of a subsidized loan, you must accept the unsubsidized loan. You can accept the unsubsidized loan but would need to meet any of these characteristics:

  • If you are not eligible for subsidized loans, but you are still enrolled in your current program.
  • If you are not eligible for subsidized loans, you did not graduate from your previous program, but you are enrolled in an undergraduate program that has the same duration or less than your previous career (for example, if you leave the degree to study in a program of associated degree).
  • A professional or you are a graduate student.
  • You do not have a specific financial need.
  • Being an independent student or a dependent university student whose parents cannot obtain direct PLUS loans.

Should I Pay Unsubsidized Loans First?

As is well known, unsubsidized federal loans are not the only ones you could take throughout your career. Once you graduate, ideally, you need to give priority to the private loans you have if any. Their interest rates are usually variable and you run the risk that they are increasingly high, affecting your finances.

Once you have gotten rid of paying off all private loans, you can pay off unsubsidized loans that have the highest fixed interest rates. The main reason is that the higher the rate, the higher your debt. Therefore, you should pay for it as soon as possible to lower the interest you are paying.

There are also unsubsidized Stafford loans that have low-interest rates.

Important tip: While paying private loans, make the minimum payments corresponding to your unsubsidized loans.

Do you Pay Back Unsubsidized Loans?

When you graduate, drop out of school or sign up to study less than part-time, you will have six months of grace before you start paying. During the grace period (six months), your loan administrator will provide you with all the necessary information and notify you when you must make your first payment. Then, from that moment, you will have to make a monthly payment.

Remember to make your payments, otherwise, you get penalty fees and more interest added on.

Don’t forget to talk with your loan provider about the different payment options that are available to you. You can choose options that will give you 10 to 25 years to pay for the unsubsidized Stafford loan.

If you cannot meet any of the payments of your unsubsidized loan, you should immediately contact your loan provider. They can help you figure out a solution. For example, they may offer to change your payment plan, to request an indulgence or to request a deferral.

Do you Have to Pay Unsubsidized Loans while in School?

No, but you must pay the interest. Any interest you do not pay while you are in school and even being in the grace period will be capitalized. That is, it will become part of the total amount to be paid at the time of starting the monthly payment plan.

Can you Pay Off Unsubsidized Loans while in School?

Pay it in full, no. If so, you wouldn’t have needed a loan initially? What you can do is pay the total debt part by part. Thus, once your grace period ends, the monthly fees will be lower. Here are three tips:

Pay the interest: As we discussed in the previous section, the first thing you can do is pay the interest on the loan, so it does not accumulate for the final payment. Remember that in unsubsidized loans, interest accrues from the moment the loan is disbursed.

Pay more than interest: It is ideal if you can get a part-time job, receive money from a family member or always have money in your account to make payments.

When making a larger payment, the amount that exceeds the interest payment will be taken as part of the payment of the loan amount. That is, you will be paying down the principal. If you can pull this off you will be happy once the grace period ends.

Return the extra money: On occasion, loan packages include funds that you won’t need during your career. Ideally, you should return this money before 120 days after the disbursement so that you do not generate interest or get caught as part of the final payment.

Besides, unsubsidized loans have the advantage that they can be partially or fully canceled two weeks before they are received. Take advantage of this period to return that extra money before receiving it, notifying your school in writing.

You can also learn more about accepting grants and scholarships by reading this article.


I hope this helps you better understand what an unsubsidized Stafford loan is and how it works. Take the advice given in the article to help you to make the best loan decisions.

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