All About Unsubsidized Loans

An unsubsidized loan is one type of federal student loan that can be used to help cover the cost of tuition at either the graduate or undergraduate level.

In the United States, student loans can either be classified as subsidized loans or unsubsidized loans. Subsidized loans are only available for undergraduate tuition, while unsubsidized loans can be taken out to cover the cost of tuition at an accredited four-year university or a post-graduate institution, as reported by Drew University. Both types of loan carry the requirement of students repaying the loan's balance. While the government assumes the responsibility of paying the student's interest in the case of a subsidized loan, the student is responsible for paying the full interest amount for an unsubsidized loan.

Unsubsidized Loans
Like subsidized loans, unsubsidized loans are regulated by the government. One of the main distinctions between the two types of loan is unsubsidized loans are not granted based on income. Students wishing to take out a student loan can do so solely with one type of loan or a combination of both, according to Student Loan Hero. The latter is a particularly popular combination for students who are enrolled in a four-year degree program and need additional time to complete their loan payment. Currently, subsidized loans are only awarded for 150 percent of the time that a student is enrolled in school, according to the Department of Education. This means a person working to obtain a four-year degree will only get governmental assistance for six years upon initiating a subsidized loan.

The unsubsidized loan can be tacked on to the end of that time period to continue providing financial relief from the expenses of education. For many people, a benefit of unsubsidized loans is they have a higher cap than subsidized loans, meaning they offer more financial assistance up front. The downside, however, is unsubsidized loans require the student to start repaying the loan's balance and the interest immediately after he or she takes out the loan. Students who borrow money through unsubsidized loans are also responsible for repaying loan interest during the grace period, which is the six months following graduation, and during periods of loan deferments, which put a temporary stop on loan payments.

Terms and Fees
As with subsidized loans, unsubsidized loans are given to each educational institution by the federal government. The government provides each school with a certain amount of money to use for students' tuition, according to the Federal Student Aid office of the U.S. Department of Education. Schools are then in charge of dividing the loan amounts among students. Many of them establish loan caps that don't allow students to take out more than a certain amount of money for loans in a year. Generally, students cannot take out a loan that exceeds the cost of tuition. Both subsidized and unsubsidized loans have the same interest rate, which is about three and a half percent APR for undergraduate loans as of June 2017, says Federal Student Aid. For graduate loans, the APR increases to almost seven percent.

Unsubsidized loans also tack on a loan fee, which is determined based on when the loan was allocated. Loan fees are slightly lower for unsubsidized loans issued before October 2018, than they are for loans issued prior to October 2017, according to the Department of Education. The loan fee is added to the total amount that the student must repay for the loan, including the capital and interest.