Before and During College: The Key Difference Between Subsidized and Unsubsidized Student Loans

Federal Direct Subsidized and Unsubsidized Loans. If you’re an undergraduate IMG_4578borrowing for college, you’ve probably borrowed both. What’s the difference? And what’s this mean for how you should handle them?

The most important ways Subsidized and Unsubsidized loans vary are:

•   Interest charges: No interest is charged on Subsidized loans while you’re enrolled at least half-time, during the six-month grace period you get when you stop being
IMG_4579enrolled half-time, and whenever your loan payments are postponed under federally-approved deferments.

Unsubsidized loan interest starts being charged the day those funds get disbursed — i.e. used to pay your tuition, given to you, or sent to your bank account, whatever comes first. This interest keeps getting charged until these loans are 100% repaid.

•   Interest Capitalization: You may pay Unsubsidized interest while you’re enrolled and during your grace period, but you’re not required to pay it until your grace period ends. At that point, interest you’ve not paid gets capitalized. This means it’s added to your loan’s principal. Then you’ll pay interest on your new, larger principal amount.

Suppose you borrow $1,000 in Subsidized and $1,000 in Unsubsidized loans at the beginning of this fall semester. Your loans’ interest rates are 5.5% (the rate for these loans in academic year 2018-19). But suppose you can’t afford to make any loan payments while enrolled, nor can you afford to pay anything during your grace period.

When your grace period ends, you’ll still owe $1,000 on your Subsidized loan. But what you owe on your Unsubsidized Loan will have grown by 23.5%, to $1,235. This is your original principal amount of $1,000 plus $235 in unpaid interest that gets added to your Unsubsidized principal. By the time it’s paid in full, it’ll cost at least $2,600 to repay your fall Unsubsidized loan of $1,000.

But you may be able to minimize your Unsubsidized loan debt. Here are three ways:

•   Reduce Borrowing: You’re not required to borrow all, or any, of the loans you’re IMG_4582offered so, if you don’t need all your Unsubsidized loan, tell the financial aid office to downsize or cancel it before it’s disbursed.

•   Pay During School: Return Unsubsidized loan funds within 120 days of the day they’re disbursed. This’ll reduce your principal amount, and the government will cancel any interest and fees charged on the returned amount. Your aid office can usually help you do this.

•   Pay During Grace: Anything you pay during your grace period will reduce interest you owe. Contact your loan servicer about this.

So because Unsubsidized loan interest always gets charged, and because it’ll inflate the amount you repay, minimize Unsubsidized borrowing whenever you can, and prepay Unsubsidized interest whenever you can.

Contact College Affordability Solutions if you’re looking for strategies that’ll reduce your costs of borrowing for college.

Before and During College: Tried and True Ways to Reduce Textbook Costs

IMG_4449Textbooks. They’re vital for postsecondary learning, but expensive. This past June the University of Northwestern — St. Paul’s Dr. Tanya Grosz observed

Textbook prices have risen up to 6 times the rate of inflation. . . . And according to a 2016 study conducted with . . . 40 public colleges in Florida, the high cost of textbooks caused 66.5% of students not to take a certain course, 47.6% to take fewer courses, 37.6% to earn a poor grade, 26.1% to drop a course, and 19.8% to fail a course.

But textbook costs can be shrunk. Most colleges provide lists of required textbook titles and ISBN numbers at or before registration so you have time to save by:

Ÿ•   Shopping Around: A booklist for each class is usually available on-line. Get it, and then compare prices for electronic and physical books — new, used, rental — at various retailers. College bookstores often charge more than you’ll pay elsewhere.

Ÿ•   Going to the Library: Campus and local libraries often have textbooks you can check out. If not, contact your instructor and ask to have books required for you class placed in the campus library.

Ÿ•   Using E-Books: Textbooks may be available electronically — sometimes, but not IMG_4450always, for less than physical books — from online retailers like Amazon, Barnes & Noble, Textbooks.com, etc. You can download them onto Kindles, laptops, mobile phones, or tablets and can do searches, highlight and copy text, insert bookmarks, and make your own notes in them. But remember – rented e-books eventually go away, so buy it if you need to keep it.

Ÿ•   Accessing Open Textbooks: These are digitally accessible texts written by experts, then edited by instructors if needed. Open textbooks are particularly useful for fields of study that require few updates (e.g. mathematics). Ask at your school’s library or maybe check out OpenStax College, a nonprofit based at Rice University, which publishes open textbooks that are free online and low cost in print.

Ÿ•   Getting Used Texts: You can buy or rent used physical books for less than new books. But check their condition. Watch out for broken spines, missing pages, and pages falling out, or books with too much that’s been marked up by others.

Ÿ•   Book-Sharing: Split textbook costs with classmates, and then share. But set clear sharing-schedules, and make sure classmates can be trusted to abide by them so IMG_4453you’ll get the books when planned.

Ÿ•   Book-Trading: Another cost-cutter trading books that are no longer needed for books need in a new term’s classes. Just double check to be sure you have the edition required by your instructor.

These strategies can help cut your expenses, which can help you borrow less for postsecondary education.

Contact College Affordability Solutions for a free consultation on other ways to cut college-related expenses.

Before College: A Last-Minute Affordability Checklist

Parents, you’ll soon be taking your freshman to college. Help him check off the following so he can begin keeping things affordable even before he arrives.

[ ] Apartment or Dorm Necessities
Make sure he has that blanket, mattress topper, printer, personal toiletries, pillow, IMG_4286sheets, and other basics not supplied by management. Space will be limited so don’t take too much extra stuff. And buy what’s needed before leaving. Merchants in college towns often charge high prices.

[ ] Coordination on Shared Items
Apartments and dorm rooms can only hold so many appliances, dishes, extra furnishings, posters, TVs, and such. These can be costly. If possible, he should contact his roommate(s) to decide who’ll bring what.

[ ] Key Money Management Knowledge
Today’s students face rapidly rising costs. They take on big debts to pay those costs. They get bombarded with credit card offers. But many don’t know about things like inflation, interest, debt, and financial record keeping. Make sure he’s not one of them.

IMG_4288[ ] Spending Plan
He needs to project what’ll remain after funds available for the academic term pay tuition and required fees. This’ll show what’s left to spend for the full term. Divide by the total weeks in the term to reduce his chances of running out of money before finals.

[ ] Do What’s Needed to Receive Loans
Loan funds don’t arrive until 5-10 days after new borrowers finish certain steps required to receive them. Unfinished steps can lead to missed payment deadlines or being cash-poor early in the term. So have him double check to make sure all these steps are complete. 

[ ] Return Unnecessary Loans Funds
Some spending plans show that extra money will be available. Their freshmen can return some of what they borrow before the term ends. This’ll cut the interest they pay. Later in the term, if it turns out they need what was returned, the financial aid office can usually help them re-borrow it.

[ ] Credit Card Management
A freshman who has or will get credit cards needs to know how to handle themIMG_4290that he’s borrowing each time he uses them, the date by which his monthly payment is required to avoid high interest charges, and that he shouldn’t use them use them to splurge or spend money he doesn’t have.

[ ] Key Deadlines
By what dates must tuition and fees, room and board or rent be paid? Missed deadlines can result in late fees, other extra charges, and even eviction. They can also hurt his credit rating.

[ ] Keep Looking for Scholarships
Some scholarships from inside and outside the college are reserved for upperclassmen. He needs to pursue these through his senior year.

[ ] Graduate On-Time
Not dropping classes helps achieve on-time graduation, which limits college costs and debt.

Want more information? Contact College Affordability Solutions for a no-charge consultation.