We’ve had a few requests to post more articles about loans. We know it’s already too late to probably apply for loans for the fall semester, but it never hurts to apply for spring. Every school is different, but a quick browsing of your school’s homepage can probably push you in the right direction as to how to go about applying for student loans. But before you apply, you should know what’s out there.

Most student loans fall under either being subsidized or unsubsidized. Like any debt instrument, you will be charged interest for the amount of debt you have outstanding. On Stafford Loans, the most common among Ameican Universities, the interest rate is 6%. The difference between subsidized and unsubsidized loans is that unsubsidized loans start charging you interest from the moment you receive the loan, and is added to the loan amount if not paid.

For example, you receive a student loan on Sept. 1st for $10,000 with a 6% interest rate. You will have an interest payment of $5 due for the month of September. If you do not pay the $50, it will be added to the amount of the loan. Septembers interest will accrue, and interest for October will be $50.25 ($1,060 x 6%/12). For unsubsidized loans, it is better to pay interest as you go. Although from first month to the second month your interest payment increased 0.25, imagine holding off four years worth of payments!

Subsidized loans begin to accrue interest usually upon graduation. Say you take out $20,000 a year for four years of scool. When you graduate (yay!), you will have an oustanding balance of $80,000, at an interest rate of 6% annually. That’s a payment each month of $400, or possibly more (depending on if you pay any principal with it or not. If you want to know what you’ll be paying in the future, find out by downloading our budgeting program for free. Most subsidized loans are for larger amounts of money, and most graduate and post-graduate (law school, med school) loans are subsidized.

Another advantage to the subsidized loans is that the government makes your interest payments for you while you are still in school. This is called a deferrment, and it makes your credit score shoot for the stars.

After you’ve applied, your school will determine eligibility based on a number of factors, including academic progress, the cost of attendance and the amount you or your family is able to pay (usually based on income). Depending on your school, scholarships may be taken into consideration as well.

View Hanna's Profile      Subscribe via RSS