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Top 5 Questions About the Federal Direct Unsubsidized Loan

Federal direct unsubsidized loan
Before taking out your federal direct unsubsidized loan, there are important things you need to know. Here are the top 5 most important questions to consider.

Nobody ever said money was simple.

But if you're looking forward to post-secondary education, you have enough to worry about without stressing about your loans.

That's why we've put together the top five questions you need answering about a federal direct unsubsidized loan. So read on to find out the answers!

What Is a Federal Direct Unsubsidized Loan?

The first question is the most obvious: what exactly is a federal direct unsubsidized loan?

Students enrolled at an accredited post-secondary educational institution can get financial aid from the federal government. Three different types of loans are available under the Direct Loan financial aid, as follows:

  • Stafford loan for students - a loan given directly to the student, which doesn't require a credit check or collateral.
  • PLUS loan - Primarily taken out by parents to help pay costs for a student. Can also be taken out by graduate students in the form of Grad Plus loans.
  • Consolidation loan - This is used to manage existing loans and turn them into a single consolidated payment.

The Stafford loan further breaks down into subsidized and unsubsidized.

To get a subsidized student loan you'll need to demonstrate a financial need to the Department of Education. Subsidized student loans are intended for students who have the quality of their education threatened by hardship. The government picks up the interest on a subsidized loan while you're still in school.

Conversely, anyone is eligible for an unsubsidized loan.

Unsubsidized loan payments are on fixed interest rates while you're still in education. But it's often the case that you won't start paying them off until after you graduate.

How Much Can I Get?

Undergraduates meeting a few key criteria should be able to secure a minimum loan of at least $5,500 an academic year. Criteria include:

  • Must be a legal resident of the USA
  • Attend education in at least a half-time capacity
  • Haven't defaulted on other student loans

Annual loan limit caps exist for students who are financially dependent on parents, in which case they won't be able to exceed $5,500 a year for the first academic year. This figure increases in increments for the following two years.

No more than $3,500 of the first academic year's allowance can be in subsidized loans.

The one big exception to these figures is for students enrolled in some health studies. Certain programs allow for higher loans, so speak to your financial aid office to find out for sure if you think you might be entitled.

Of course, if you've got a firm handle on your expenses, you can also take a smaller loan than you're offered. This is a good way to keep interest under control while still meeting your needs.

How Do I Get It?

You'll need to jump through a few hoops to get your loan, and the exact process will vary from school to school.

To start the loan process off, you'll generally file a FAFSA (Free Application for Federal Student Aid). You'll need to do this before you can go any further in the process. You can complete a FAFSA or renew one online.

After completing your FAFSA, you'll need to get a financial aid award letter from the financial office of your chosen school. This letter should clearly state exactly what you're eligible for.

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Note About Fees

Other than interest, there are additional loan fees on all Direct Subsidized Loans and Direct Unsubsidized Loans.

The loan fee is about 1% of the loan amount and is proportionately deducted from each loan disbursement.

Next, you'll need to complete a Master Promissory Note or MPN. This is a legal document stating your commitment to repaying the loan along with any interest you accrue. It'll also include all of your terms and conditions, so now is the time to read the small print!

If this is your first time getting a Direct Loan, then it's a federal requirement for you to complete entrance counseling. This is a short assessment that checks you understand the responsibility you're taking on with the loan.

Once your loan is activated, it'll be sent to your school account to pay any schooling costs, like tuition fees. If there's anything left over, it'll be paid directly to you. However, the loan must be spent on education costs!

How Is It Different From a Subsidized Loan?

The main difference between a subsidized and unsubsidized loan is in the interest. The Department of Education states that you are responsible for paying the interest on a Direct Unsubsidized Loan during all periods. Your loan type will also affect how much you can borrow.

Interest on subsidized loans won't accumulate while you're in the six-month grace period or still in school at least on a half-time basis. You also won't usually be charged interest during a deferment period.

Subsidized loans are also only available to undergraduate students.

How and When Do I Repay It?

Federal direct unsubsidized loan repayments start after your 6 month grace period runs out.

Before the end of that period, your loan servicer should outline your repayment plan schedule for you. You should have plenty of notice for when you'll need to repay.

If you find yourself struggling to make loan payments, there are a number of forgiveness programs that may help you. It's important you seek help if you feel you're falling behind on payments - a debt burden can be crushing.

Some employers include loan repayment plans as a benefit in their employment package.

Like most loans, you can pay the old-fashioned way by check, or through an online service. Setting up an automatic payment is a great way to make sure you don't miss a payment.

You don't have to wait until your grace period is up before you start repaying your loan, either. Keeping that in mind can give you a 6-month head start!

Note that even if you don't complete your education or can't find a job in your chosen industry, you'll still be expected to repay your loan. These aren't considered grounds for forgiveness or cancellation.

Types of forgiveness available include:

  • Closed School Discharge
  • Total and Permanent Disability Discharge
  • Discharge Due to Death
  • False Certification of Student Eligibility or Unauthorized Payment Discharge

One Less Stress

Now we've talked through some of the big questions about a federal direct unsubsidized loan, you have one less stress to worry about!

Getting the process sorted and getting your hands on the money can leave you free to start thinking about the future.

Be sure to follow our blog for more advice on loans and personal finances!