What is an Unsubsidized Stafford Loan?

First consider what a Stafford loan is by definition. This refers to a federal loan for continuing education that is granted by the United States Department of Education through the Federal Direct Student Loan Program. This loan might also be called an FDSLP or even a Stafford Direct Loan. Another way to get a Stafford loan is to work through a financial intermediary through the Federal Family Education Loan Program otherwise known as FFELP. These are not grants; they are loans that are repayable to the government. Many students seek out these loans because they have much lower interest rates than private lenders offer. You may choose to apply for a subsidized or unsubsidized Stafford loan. What is the difference?

An unsubsidized Stafford loan requires that students pay all of the interest that accrues while they are still enrolled in school. This interest may be deferred throughout the enrollment, but must still be paid upon graduation and the said grace period. The unpaid interest that accrues will be capitalized, which means it will be added on to the principal balance to be paid at the agreed upon date.

The major difference here is that unsubsidized loans are not awarded to students based upon their financial needs like subsidized loans. This means that any student meeting the necessary legal requirements can take out an unsubsidized loan. The student will be charged interest from the date that the loan is first given until the date when the loan has been fully repaid.

The disadvantage is obvious: you have to pay back the interest that accrues during school, and perhaps while still in school, unless the contract states that all interest is deferred. Regardless, many students have found it convenient to pay the interest by the month rather than have to worry about making a balloon-like payment later on.

Another notable difference between subsidized and unsubsidized loans is in how much money the student is allowed to borrow every year. Unsubsidized Stafford loans have a higher cap on the loan amount, usually estimated to be about $4,000-$5,000 more every year. Sometimes students take out a subsidized loan, reach the cap on it, and then pursue an unsubsidized loan. This will happen frequently, as a Stafford unsubsidized loan (or usually subsidized for that matter) will not match the total cost of the institutional fee.

There is plenty of information online on how to find a Stafford unsubsidized loan through a variety of channels.