When financial aid like scholarships and grants comes up short, federal student loans can help bridge the gap.
Unsubsidized Direct Loans may be offered to undergraduate and graduate students in a financial aid package.
Subsidized Direct Loans may be offered to undergrads only, and have benefits in terms of who pays the interest during certain periods.
When a college sends an aid offer, the student must indicate which financial aid to accept. Here, we’re looking at Unsubsidized Direct Student Loans and how they can help you pay for college.
What Is an Unsubsidized Student Loan?
The Department of Education provides Federal Direct Unsubsidized Student Loans as one of four options under the William D. Ford Federal Direct Loan Program. (Direct Subsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans are the other types.)
Unsubsidized loans provide undergraduate and graduate-level students with a fixed-rate financing option to help fund their college education.
Unlike Direct Subsidized Loans, unsubsidized student loans are not based on financial need. This means that any student may receive unsubsidized loan funding, as long as it meets the Department of Education’s general eligibility requirements.
How Do Unsubsidized Student Loans Work?
If you’re eligible for Direct Unsubsidized Student Loans, the amount you’re offered for the academic year is determined by your school, based on its cost of attendance minus other financial aid you’ve received (such as scholarships, grants, work-study, and subsidized loans).
You will need to complete entrance counseling to ensure you understand the terms and your obligation to repay the loan. Then you’ll sign a master promissory note stating that you agree to the loan terms.
The government will send the loan funds directly to your school. Your institution will then apply the money toward any unpaid charges on your school account, including tuition, fees, room, and board.
Any remaining money will then be sent to you. For example, if you were approved for $3,800 in unsubsidized loans but only $3,000 was applied to your education costs, the school will send the remaining $800 to you.
The Education Department’s Federal Student Aid office recommends accepting grants and scholarships first, then work-study, then loans. And it advises accepting a subsidized loan before an unsubsidized loan, and an unsubsidized loan before a PLUS loan.
A Matter of Interest
As soon as any student loan is disbursed, it starts accruing interest. For federal student loans and most private student loans, you can defer payments until after your grace period, which is the first six months of leaving school or dropping below half-time status.
Here’s the kicker: With a subsidized student loan, the government pays the interest while you’re in school and during your grace period and any hardship deferment.
With an unsubsidized federal student loan or private student loan, unpaid interest that accrues will be added into your loan’s principal balance when you start repayment.
Pros and Cons of Unsubsidized Student Loans
Although unsubsidized student loans offer many benefits, there are also some downsides to know.
| Unsubsidized Loan Pros | Unsubsidized Loan Cons |
|---|---|
| Eligibility is not based on financial need | Interest accrues upon disbursement |
| Available to undergraduate and graduate students | You’re responsible for all interest charges |
| Can help cover educational expenses up to an annual limit | Graduate students pay a higher rate |
| No credit check or cosigner required | Interest capitalizes if payments are deferred |
| Can choose to defer repayment | |
| Multiple payment plans are available |
Applying for Unsubsidized Student Loans
Applying for federal financial aid starts with the FAFSA® — the Free Application for Federal Student Aid. Students seeking aid complete the FAFSA each year.
Where to Apply
Applying for the FAFSA can be done at studentaid.gov, or you can print out a paper FAFSA and mail it.
Based on the information you included in your FAFSA, each school that you listed will determine your financial aid offer, including whether you’re eligible for an unsubsidized loan.
Typical Application Requirements
You must have an enrollment status of at least half-time to be eligible for a Direct Loan. You must also be enrolled in a degree- or certificate-granting program at a school that participates in the Direct Loan Program.
The Department of Education has general requirements to be eligible for federal aid. Applicants must:
• Be a U.S. citizen or eligible noncitizen
• Have a Social Security number
• Prove that they qualify for a college education
• Maintain satisfactory academic progress
• Sign a certification statement
In the certification statement, you’ll need to confirm that you aren’t currently in default on a federal student loan and don’t owe money on a federal grant, and affirm that you’ll only use aid funds toward educational costs.
How Long Will You Have to Wait?
After submitting your FAFSA, it can take the Department of Education three to five days to process your application. If you submitted your FAFSA by mail, processing can take up to 10 days.
Once you’ve told your school which financial aid you want to accept, loan disbursement timelines vary. Generally, first-time borrowers have up to a 30-day waiting period before they receive their funds. Other borrowers may receive funding up to 10 days before the start of the semester.
How Much Can You Borrow?
There are annual limits to how much in combined subsidized and unsubsidized loans you can borrow. These limits are defined based on the year you are in school and whether you’re a dependent or independent student.
Here’s an overview of combined subsidized and unsubsidized loan limits per year for undergraduate students:
| Undergraduate Year | Dependent | Independent |
|---|---|---|
| First-year student | $5,500 | $9,500 |
| Second-year student | $6,500 | $10,500 |
| Third year and beyond | $7,500 | $12,500 |
Graduate students are automatically considered independent and have an annual limit of $20,500 for unsubsidized loans (they cannot receive subsidized loans).
There are also student loan maximum lifetime amounts.
Subsidized vs Unsubsidized Student Loans
Another type of loan available through the Direct Loan Program is a subsidized loan. Here’s a quick comparison of subsidized vs. unsubsidized loans.
| Subsidized Loans | Unsubsidized Loans |
|---|---|
| For undergraduate students | For undergraduate and graduate students |
| Borrowers aren’t responsible for interest that accrues during in-school deferment and grace period | Borrowers are responsible for interest that accrues at all times |
| Borrowers must demonstrate financial need | Financial need isn’t a requirement |
| Annual loan limits are typically lower | Annual loan limits are generally higher |
Alternatives to Unsubsidized Student Loans
Unsubsidized student loans are just one type of financial support students can consider for their education. Here are some alternatives.
Subsidized Loans
Direct Subsidized Loans are fixed-rate loans available to undergraduate students. As discussed, borrowers are only responsible for the interest charges that accrue while the loan is actively in repayment.
Scholarships and Grants
In addition to accessing potential scholarships, grants, and loans through the FAFSA, students can seek financial aid from other entities.
Scholarships and grants for college may be found through your state or city. Businesses, nonprofits, community groups, and professional associations often sponsor scholarships or grants, too. The opportunities may be based on need or merit.
Private Student Loans
Private lenders like banks, credit unions, and other financial institutions offer private student loans. Some schools and states also have their own student loan programs.
Private student loan lenders require borrowers, or cosigners, to meet certain credit thresholds, and some offer fixed or variable interest rates. Many lenders offer pre-qualification without a hard credit inquiry.
Private student loans can be a convenient financing option for students who are either ineligible for federal aid or have maxed out their federal student loan options. One need-to-know: Private student loans are not eligible for federal programs like Public Service Loan Forgiveness and income-driven repayment.
SoFi Private Student Loan Rates
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
FAQ
What are unsubsidized loan eligibility requirements?
To be eligible for a Direct Unsubsidized Loan, undergraduate and graduate students must be enrolled at least half-time at a qualifying school. They must also meet the basic eligibility requirements for federal aid, including being a U.S. citizen or eligible noncitizen, having a Social Security number, and completing the FAFSA.
How long does it take to receive a Direct Unsubsidized Loan?
Loan disbursement for first-time borrowers can take up to 30 days after the first day of enrollment. For others, disbursement takes place within 10 days before classes start.
What is the maximum amount of unsubsidized loans you can borrow?
Dependent students can borrow a maximum of $5,500 and $6,500 per year during their first and second academic years, respectively. Students in their third year of school and beyond can borrow an annual maximum of $7,500. The aggregate loan limit for dependent students is $31,000 in combined subsidized and unsubsidized loans.
Graduate or professional students may receive up to $20,500 per year in unsubsidized loans. Their aggregate loan limit is $138,500 (which includes all federal student loans received for undergraduate study).
Photo credit: iStock/LPETTET
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
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