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Direct state non-subsidised loans

19.04.2021
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5 min.

This type of loan has flexible repayment options and a very low interest rate. It can be applied for by both undergraduate and postgraduate students.

Direct state non-subsidised loans

Note! The unique feature is once a loan has been granted the recipient must pay interest on it as there is no grace period when a student gets money but does not have to pay the loan off.

If you need funds for your studies check the terms and conditions of a possible loan first. This applies to any type of it and is very important for students because the loan terms and interest rate determine how much the loan user has to pay back after graduation.

What is a non-subsidized loan?

When filling in the Free Application for Federal Student Aid (FAFSA) you will be asked to choose between two types: subsidized and non-subsidized loans. Non-subsidized loans are easier to apply for as they do not require proof of any financial need. Your educational institution sets the loan amount and it is determined by tuition fee as well as the value of scholarships you get.

Attention! If you apply for a non-subsidized loan you are fully committed to paying the loan interest till fully paid. The debt will be added to the amount you owe. As a result, the interest will grow.

Procedure for issuing a non-subsidized loan

Whichever type of financial aid you apply for the first thing you should do is to fill in the FAFSA application form. To receive funding for the next year you need to fill in a form on the website by June, 30. In that case, the funds for the fall semester will come in time. The form is available from October, 1 of the previous year so you can take care of it in advance. You should also keep in mind that some educational institutions start accepting applications early.

After filling in the FAFSA you will have an idea what the intended family contribution (EFC) is. The FAFSA forwards your application to the institution of your choice. A financial assistance package is individual in each case. First of all, students use grants and scholarships which do not have to be paid off and after that they rely on loans which have to be paid back.

Important! An applicant for funding will receive a letter stating which type of government student loan can be applied for.

The letter will offer you a direct non-subsidized loan or a direct subsidized one. Usually the procedure requires signing a promissory note that guarantees payment of the loan in the future. Students applying for a federal loan for the first time get introductory counselling.

Compare non-subsidized and subsidized loans

Let's take a closer look at the differences between two types of loans.

Non-subsidized

  1. Both undergraduate and postgraduate students can apply.
  2. You do not need to provide proof of financial need in order to apply.
  3. A loan value is determined by tuition fees and other subsidies.
  4. No grace period provided.

Subsidized

  1. Only undergraduate students can apply.
  2. You must prove financial need in order to obtain one.
  3. The assigned amount should not be greater than the financial need.
  4. A loan interest is covered by the state during studying period of the borrower and six months after graduation.

Important points to consider when applying for a student loan

Anyone applying for a government student loan should be aware of the points below.

Interest

There is a big difference in the amount of payments for non-subsidized and subsidized loans. Even if students take the same sum they will end up overpaying differently. Borrowers who do not pay interest on non-subsidized loans before graduation will have to pay back much more than the initial amount was. Additionally, a payment of between 1.062% and 1.066% must be proceeded for any government loan.

Maximum amount

A loan amount depends on several factors. Dependent undergraduate students can expect not more than 31,000 dollars and no more than 23,000 dollars out of it is available for subsidized loans.

Independent undergraduate students who are unable to obtain a PLUS loan can apply for up to 57,500 dollars. Out of this amount, the limit for subsidized payments is 23,000 dollars as well.

Interest payment

Very often students and their parents who have taken out a non-subsidized loan try to pay the interest on the loan as it grows. This forms a habit of paying off a student loan as students see how interest rates rise and how payments affect the debt amount.

Major loan payment

Regardless of a loan type government student loans have different pay back plans:

  • standard:
  • progressive;
  • extended;
  • income oriented.

Important! You do not have to take the whole amount offered. Arrange as much as you really need. Read all the information carefully before taking out a student loan to see how the payments will affect your budget. Use the student loan calculator to count your payments after you graduate.

Why do students choose non-subsidized loans?

Although subsidized loans have better conditions, non-subsidized ones are still relevant to many students. In case a loan is subsidized, the government will pay the interest back even before you graduate. However, not all students are qualified for a subsidized loan. Those who do not meet these requirements can take advantage of an non-subsidized loan.

Anyone can get a non-subsidized loan regardless of income or other conditions as the requirements for borrowers are quite flexible.

Are government loans more preferrable than private ones?

It is worth trying to apply for a government loan as it has a number of advantages:

  • government loans offer lower interest;
  • if a borrower has no credit record a guarantor may be required for a private loan;
  • state loans offer more options for debt payment and waiver compared to private loans.

Important! You should have a private loan when there is a payment gap or other options are unavailable. Carefully compare all offers in terms of interest rates and pay back options.

To apply for an non-subsidized state student loan you must

  • Have US citizenship or be a permanent resident of the country.
  • Have at least a part-time job.
  • Have no debts on loans or other aid programmes.
  • Have satisfactory academic grades.
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