What Is an Unsubsidized Loan?
When you're facing the costs of higher education, getting a loan is a typical method of helping to pay for the costs. It can be confusing to understand the differences between the loans and the benefits to each.
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Identification
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An unsubsidized loan is money that you get from the university or college that you're attending, a bank or a loan company. You pay the interest as you go through your education, or after you've graduated. The interest on the loan is added (capitalized interest).
Misconceptions
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There is some confusion that an unsubsidized loan is similar to--or the same as--a subsidized loan. A subsidized loan is via a federal government program only. Students have to meet the requirements of the particular loan, which typically involve high grade point averages or other qualifications. An unsubsidized loan is open to applications from almost anyone, though there are qualifications and increased-risk interest rates.
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Function
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The reasons many students choose an unsubsidized loan is that they don't qualify for a subsidized loan, their grade point average is low or the family income doesn't meet the standard. Unsubsidized loans are easier to obtain.
Considerations
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There are two types of unsubsidized loans. The first is "pay as you go," where you pay off the interest that's gathering while you go to school. The second is a "Capitalized unsubsidized loan." Here, the interest is saved up and added to your loan when you finish school, which is when you begin paying it back.
Benefits
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The main benefit to getting an unsubsidized loan is that you can get a higher education, even if you don't currently have the money for it. The market is competitive, which means you can shop around for the best interest rates and flexibility for repaying the loan. (See "Additional Resources," below.)
Warning
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Unsubsidized loans may be easier to get, but they also come with a higher interest rate. The more "financially at risk" you are, the more you'll pay. Many people struggle with loan repayments strictly because of the interest.
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