Drawbacks of Unsubsidized Student Loans
You're responsible for paying the interest on that loan from day one. Unsubsidized loans are not the worst loans you can borrow in terms of pure cost and the interest rate that you'll receive. However, the interest accumulates even before you enter repayment.
Direct Unsubsidized Loans
Yes, because they are still installment loans that must be paid back, even if they are from the government.
Once you initially accept or decline your Federal Direct Loan offers, they will be frozen. To increase your loan amount, you can complete the Loan Increase/Reinstatement Request form. You may request up to your maximum eligibility based on the Federal Direct Loan borrowing limits.
No, you don't have to accept all of the financial aid offered to you. However, it is still very important to note that it is okay to accept all of it.
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.
What happens to the leftover financial aid money? Well, that depends on you and how you want to handle it. In general, you'll receive a refund. You can then decide whether to send the money back or keep it and use it for future educational expenses.
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'll likely have a higher balance that accrues interest much faster. Once your grace period is over, even subsidized loans will start accruing interest.
You can notify Student Accounts Services that you wish to cancel your loan within 14 days of their notification to you that your loan funds have been credited to your account or by the first day of classes, whichever is later.
Remember: any unused student loan money is still part of your loan and must be repaid. You are responsible for paying interest on the unused funds, even if you don't use them at the original disbursement date.
Once you graduate, drop below half-time enrollment, or leave school, your federal student loan goes into repayment. However, if you have a Direct Subsidized, Direct Unsubsidized, or Federal Family Education Loan, you have a six-month grace period before you are required to start making regular payments.
Student loans add to your debt-to-income ratio
Student loans increase your DTI, which isn't ideal when applying for mortgages. Most mortgage lenders require your total DTI ratio, including your prospective mortgage payment, to be 45 percent or less, though it's possible to find lenders that will accept a higher DTI.
There are some differences around how the various data elements on a credit report factor into the score calculations. Although credit scoring models vary, generally, credit scores from 660 to 724 are considered good; 725 to 759 are considered very good; and 760 and up are considered excellent.
Explore your federal options first
For most student borrowers, federal Direct loans are the better option. They almost always cost less and are easier to repay.
If you have to take out any unsubsidized loans while you're in school, the key to avoiding interest capitalization is to simply pay off your student loan interest on a monthly basis.
Interest accrual, interest capitalization, fees, deferment, forbearance, and grace periods can all increase your student loan balance. Paying more than the minimum each month, making extra payments, and paying interest while in school can help reduce your loan costs.
You'll have to repay the money with interest. Subsidized loans don't generally start accruing (accumulating) interest until you leave school (or drop below half-time enrollment), so accept a subsidized loan before an unsubsidized loan.
Federal Direct Loans
If you are awarded Federal Direct Subsidized or Unsubsidized loans, each loan must be accepted or declined. ALL of a Subsidized Loan must be accepted before accepting any portion of an Unsubsidized Loan.
Grants and Student Loans
If you get your loan money, but then you realize that you don't need the money after all, you may cancel all or part of your loan within 120 days of receiving it and no interest or fees will be charged.
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.
Paying student loans means accumulating higher-interest debt
It usually doesn't make sense to prioritize student loans over higher-interest debt, such as credit card debt. The same is true if you're accumulating more credit card debt to pay off student loans early.
Both Direct Subsidized Loans and Direct Unsubsidized Loans are offered to students regardless of their credit history and neither will result in a hard inquiry. A Direct PLUS Loan, however, does require a credit check, so if you're considering one, your credit scores may take a slight hit.
Students selected for verification of their FAFSA form may wonder, “Does FAFSA check your bank accounts?” FAFSA does not directly view the student's or parent's bank accounts.
If there is money left over, the school will send the remainder to you, and you can use it to cover your other expenses, such as your textbooks or transportation. Financial aid disbursement dates vary by school, but are generally between 10 days before the start of the semester and 30 days after classes begin.
There's no official income cutoff to qualify for federal student aid. Yes, your family's annual income influences your aid package, but other factors, such as family size and year in school, also help determine your level of aid. Ultimately, submitting a FAFSA is relatively easy and 100% free.