Given the option, you should accept a Direct Subsidized Loan first. Then, if you still need additional financial aid to pay for college or career school, accept the Direct Unsubsidized Loan.
That said, if you do decide to take on federal loans, it's generally wise to accept subsidized loans first because they offer more benefits in the form of government interest payments. Unsubsidized loans, on the other hand, put you on the hook for all of the interest that accrues on the loan.
While unsubsidized student loans are more expensive than subsidized loans, they also have some advantages compared with private student loans, including lower interest rates and more flexible repayment options.
Which Student Loans Should You Pay First: Subsidized or Unsubsidized? It's a good idea to start paying back unsubsidized student loans first, since you're more likely to have a higher balance that accrues interest much faster.
Here are some advantages of federal Direct loans:
You will not need a co-signer, which private loans typically require. Lower interest rates: For most borrowers, federal loans offer lower interest rates than private loans. If you qualify for subsidized loans, use them first.
In other words, the type of loan doesn't matter once the deferment period ends, but if you're a current student who is getting an early start on loan repayment, you'll want to start paying your unsubsidized loans as soon as possible so you can save yourself from paying large sums in interest down the road.
If you got your loan after July 1, 2023, and before July 1, 2024: For undergraduate students, the interest rate for Direct Subsidized Loans and Direct Unsubsidized Loans is 5.50%. For graduate or professional students, the interest rate for Direct Unsubsidized loans is 7.05%.
If you have federal student loans, they may be either subsidized or unsubsidized loans. It's typically best to focus on your unsubsidized loans first since they accrue interest during school and your grace period.
You may reduce or cancel a Direct Unsubsidized Loan online via your myUMBC account if it has not yet disbursed. If the loan has already disbursed, you should complete the Loan Decrease/Cancel Request Form no later than 14 days after you receive notification that your loan has disbursed.
If you have a Direct Unsubsidized Loan, you have the option to pay interest while you are in school, or you can wait until you are no longer enrolled. Our office recommends that you pay the interest to minimize your loan debt.
Given the option, you should accept a Direct Subsidized Loan first. Then, if you still need additional financial aid to pay for college or career school, accept the Direct Unsubsidized Loan.
Federal unsubsidized student loans are also a good option as they come with a fixed interest rate, income-driven repayment plans and a higher maximum loan amount than subsidized loans.
If you are accepting loans for the first time, you will need to complete your Entrance Counseling and Master Promissory Note on www.studentloans.gov. Your loans WILL NOT disburse until these requirements are satisfied.
For example, if you take out a $70,000 student loan and pay it back in 10 years at an APR of 5%, your monthly payment will be $742. But if you pay off a $70,000 student loan in one year at a 14% APR, your monthly payment will be $6,285.
Unlike that of subsidized loans, interest on unsubsidized loans starts accruing immediately upon disbursement and accrues even during deferments or grace periods, making this debt more expensive.
Unsubsidized Loans are loans for both undergraduate and graduate students that are not based on financial need. Eligibility is determined by your cost of attendance minus other financial aid (such as grants or scholarships). Interest is charged during in-school, deferment, and grace periods.
Best repayment option: standard repayment. On the standard student loan repayment plan, you make equal monthly payments for 10 years. If you can afford the standard plan, you'll pay less in interest and pay off your loans faster than you would on other federal repayment plans.
If you take out a Direct Subsidized Loan, you will not be charged interest while you're in school, during your grace period, or during other periods of deferment. If you take out a Direct Unsubsidized Loan, interest will accrue on your loan as soon as it is disbursed, even while you are in school.
The interest rate on a federal student loan is fixed and is typically lower than private loan rates. No credit check or cosigner is required to qualify for most federal student loans. Repayment doesn't begin until after you've left college or dropped below half-time enrollment.
You must start paying back your loan after you graduate, leave school, or drop below half-time enrollment.
Paying Off Your Loan Early
You may prepay all or part of your federal student loan at any time without penalty. Any extra amount you pay in addition to your regular required monthly payment is applied to any outstanding interest before being applied to your outstanding principal balance.