What Is an Unsubsidized Loan?


Quick Answer

An unsubsidized loan is a type of student loan funded by the United States Department of Education in which the loan accumulates interest even if the borrower is still attending school, or within a grace period. Unsubsidized loans are available to all students whose financial aid doesn't satisfy the cost of attendance, regardless of their personal financial status. Unsubsidized loans are available to help pay for the cost of higher education at qualified four year colleges, universities or career, trade or technical schools, and loan eligibility can be determined by filling out a FAFSA form.

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Full Answer

To receive an unsubsidized loan, the applicant must be enrolled in a program that leads to a certificate or degree offered by a school that participates in the Direct Loan Program. Financing is available to both graduate and undergraduate students. Applicants are not required to show financial need to receive unsubsidized financing. The applicant’s respective school determines the annual amount of financing. Annual loan limits and the total loan amount vary depending on the year and the applicant’s status as a dependent or independent student.

In addition to interest payments, unsubsidized loan borrowers must also pay a loan processing fee. The loan fee is a percentage of the payment amount and is proportionately deducted from each loan payment. The repayment schedule begins six months after the borrower graduates, leaves or drops below the half time enrollment threshold. To apply for an unsubsidized loan, applicants must complete and submit the Free Application for Federal Student Aid (FAFSA) form. The applicant’s respective school uses the application to determine eligibility and the loan amount.

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