Law School Discussion

Subsidized v. Unsubsidized federal stafford loans

Subsidized v. Unsubsidized federal stafford loans
« on: March 24, 2006, 11:30:15 AM »
So, I am all confused about the differences between sub. and unsub. stafford loans:

I read that for:

The Stafford loan interest rate is 4.70% during in-school, grace, and deferment periods and 5.30% during repayment for loans disbursed on or after July 1, 2005 through June 30, 2006. The interest rate for Stafford loans is variable and may change annually but will never exceed 8.25%.

Grace period of 6 months after school.

So 1) how are they different? 2) what does it mean by in-school grace periods and out of school?  do we have to repay our loans during school???

law123

  • ****
  • 202
    • View Profile
Re: Subsidized v. Unsubsidized federal stafford loans
« Reply #1 on: March 24, 2006, 11:36:11 AM »
So, I am all confused about the differences between sub. and unsub. stafford loans:

I read that for:

The Stafford loan interest rate is 4.70% during in-school, grace, and deferment periods and 5.30% during repayment for loans disbursed on or after July 1, 2005 through June 30, 2006. The interest rate for Stafford loans is variable and may change annually but will never exceed 8.25%.

Grace period of 6 months after school.

So 1) how are they different? 2) what does it mean by in-school grace periods and out of school?  do we have to repay our loans during school???

The way I understand it is that with a subsidized stafford loan, you never pay interest as the government pays or subsidizes it (I think the max sub you can get is like 8K).  Un-sub, you would pay the interest.  You don't have to pay your loans durng school but if you do you would get that interest rate you quoted; as you would during both the 6 mo. grace period and if you deferred on your loans.  The interest rates used to be fixed at around 3.5% but Bush recently changed it to a variable rate of, I thought 8.5%.

Re: Subsidized v. Unsubsidized federal stafford loans
« Reply #2 on: March 24, 2006, 11:45:06 AM »
Got it. So do you mean that if I don't pay back my loans during school (at a lower interest rate), I would have to go for hte higher interst rate and pay back more after school (since the interest rate is gonan be up-ed with the principle)

law123

  • ****
  • 202
    • View Profile
Re: Subsidized v. Unsubsidized federal stafford loans
« Reply #3 on: March 24, 2006, 12:10:16 PM »
Got it. So do you mean that if I don't pay back my loans during school (at a lower interest rate), I would have to go for hte higher interst rate and pay back more after school (since the interest rate is gonan be up-ed with the principle)
[/quote
I'm not sure if I completely follow your question.....if you don't pay back during school, which I imagine hardly anyone does, your interest rate would just be whatever the federal gov't. has it set for at the particular time.  If you can afford to pay it back during school, I think--although I am not sure at all--that you get a more favorable interest rate.  Anyway, the key is obviously to pay back as quickly as possible so you pay less money in interest.

Re: Subsidized v. Unsubsidized federal stafford loans
« Reply #4 on: March 24, 2006, 12:21:06 PM »

The way I understand it is that with a subsidized stafford loan, you never pay interest as the government pays or subsidizes it (I think the max sub you can get is like 8K). 

This is not completely correct.  The interest is paid by the government ONLY while you are in school at least half time and for six months following but then the subsidized loans accrue interest just like the unsubsidized which accrues interest the entire time.

Re: Subsidized v. Unsubsidized federal stafford loans
« Reply #5 on: March 24, 2006, 10:33:44 PM »
So, what is the difference in terms of the interest rate?  How is subsidized loan better than the unsubsidized ones then?  By like 1% interest rate??

jashdey

Re: Subsidized v. Unsubsidized federal stafford loans
« Reply #6 on: March 27, 2006, 10:38:18 PM »
I believe the interest rates are the same for sub and unsub (at least they were for my previous grad school loans), it's just that the interest for which you are responsible accrues while you're in school for the unsubidized portion.  If you can pay the accrued interest while you're in school that is a benefit as then you won't be adding to your principal amount (upon which interest is calculated).

Re: Subsidized v. Unsubsidized federal stafford loans
« Reply #7 on: March 28, 2006, 03:29:13 PM »
Here's how I believe they work.  Two loans, one subsidized and one that isn't, are made for $1K each at 5% interest.

After 1st year
Un: $1050.00
Sub:  $1000.00 (government paid the $50 in interest)

After 2nd year
Un:  $1102.5
Sub:  $1000 (government paid another $50 in interest this year)

After 3rd year
Un:  $1157.625
Sub:  $1000 (government paid another $50 in interest this year)

After 4th year (presuming no payments have been made)
Un:  $1215.51
Sub:  $1050 (government has stopped paying the interest for you as you're out of school)

Note:  This doesn't take into acount the 3-4% origination fees.

So the Subsidized Stafford Loan (except the origination fees) is as good as Mom and Dad making a no interest loan to you for the first few years.

I believe the Un-Subsidized Stafford Loan is still better than the PLUS loans, because they'll have a lower interest rate.

Re: Subsidized v. Unsubsidized federal stafford loans
« Reply #8 on: March 30, 2006, 05:43:23 PM »
Hey, does anyone know the max that you can get in subsidized loans? Ive heard something about 18,500 - is that both sub and unsub loans?

Re: Subsidized v. Unsubsidized federal stafford loans
« Reply #9 on: March 30, 2006, 07:20:12 PM »
max 8500 subsidized, 10k unsubsidized