Subsidized and Unsubsidized, what's the difference?

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Subsidized and Unsubsidized, what's the difference?

Post by Guest-1266 »

Guarantee agency has purchased and is trying to collect unsubsidized student loans from me.

Can they do that?

What they can and what they can't do compared to subsidized loans?

Thanks for all replies.
David A. Szwak
Posts: 4126
Joined: Tue Jul 26, 2005 4:15 am

Post by David A. Szwak »

I did some research on your question and apologize about the delay. I clipped the text below from several sites and hope it helps some.


[ue5]The federal government pays the interest on a subsidized student loan during in-school status, grace periods, and authorized deferment periods[/ue5]. To qualify for a subsidized Stafford Loan, astudent must have financial need.A borrower unable to qualify based on need for a subsidized Stafford Loan may apply for an unsubsidized Stafford Loan, which is not based on need. Also, a student able to qualify for only a part ofthe subsidized Stafford Loan limit may apply for an unsubsidized Stafford Loan to cover the EFC and any unmet financial need (up tothe annual loan limit). [ue5]An unsubsidized student loan does not qualify for the interestsubsidy that the federal government pays on a subsidized loan during in-school, grace, and deferment periods[/ue5]. Thus, while astudent with a $1,000 unsubsidized Stafford will receive the same educational benefit as a student with a $1,000 subsidized Stafford,the cost of repaying the loan will be higher. Note that all PLUSloans are unsubsidized loans.In most cases, the interest that accumulates on an unsubsidized loan will be capitalized and added to the principal balance. Astudent can reduce interest costs on the loan by continuing to make monthly interest payments during periods when the repayment of principal is deferred (in-school, grace, and deferment).

An unsubsidized student loan is not based on the student’s financial need, but students must also meet specific eligibility requirements. Interest is charged throughout the life of the loan. The borrower may choose to pay the interest charged on the loan or allow the interest to be capitalized (added to the loan principal).

Federal Direct Unsubsidized Loan -- The Federal Direct Unsubsidized Student Loan is available to students who did not demonstrate financial need according to the Free Application for Federal Student Aid. The amount the student can borrow is based on the number of credit hours the student has earned ($2625 for freshmen, $3500 for sophomores, $5500 for juniors and seniors). Interest on this loan will accrue while the student is in school. The loan carries a variable interest rate that caps at 8.25%. Repayment begins 6 months after the student graduates or falls below halftime status. See definition for "subsidized" and "unsubsidized" loans below.

STAFFORD UNSUBSIDIZED STUDENT LOAN: Loan is not based on need, allowing students at all income and asset levels to be eligible for a lower-cost student loan. The student isresponsible for paying interest while in school. However, interest will accrue and capitalize.

Schools now have two primary strategies that can be used to reduce both loan delinquency and loan default. These strategies are:

Default Prevention Plan

Late Stage Delinquency Process

Each alternative provides a unique approach to the reduction of delinquency and default. Schools may choose to use one or both strategies. For maximum results, it is recommended that schools utilize both approaches. In this section we will describe both strategies and discuss the steps necessary to both develop and implement each approach.

I. Late Stage Delinquency (A powerful short term strategy)

Late Stage Delinquency Assistance, or LSDA, is a simple, straightforward strategy, available to all schools, which is based upon a number of basic realities of loan collection in the Stafford Loan program.

What is “Late Stage Delinquency”?

[ue5]Borrowers who are more than 240 days but less than 361 days delinquent in making a payment on a subsidized or unsubsidized student loan are considered in “late stage delinquency[/ue5]”. A vigorous Servicer has already resolved the vast majority of delinquent accounts by the 240th day. Borrowers who are in late stage delinquency are at greatest risk of losing eligibility for Title IV aid and defaulting on their student loan. The good news is that this represents a small percentage of your students in repayment.
David A. Szwak
Bodenheimer, Jones & Szwak, LLC
416 Travis Street, Suite 1404, Mid South Tower
Shreveport, Louisiana 71101
318-424-1400 / Fax 221-6555
President, Bossier Little League
Chairman, Consumer Protection Section, Louisiana State Bar Association
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