An unsubsidized student loan is one in which the interest starts accruing the moment you or your school receive the loan funds. That means interest starts adding up the first day that the payment is made. The cost is then added to the principal of the loan, which is called capitalization. Capitalization can be risky because it can make your balance owed greater than the amount borrowed.
Compare this to the subsidized loan definition, which is a type of loan for undergraduate students with financial need. Subsidized loans do not accrue interest while you’re in school or during deferment periods.
Direct Unsubsidized Loan Definition
Direct unsubsidized loans are available to undergraduate, graduate, and professional students and they do not need to demonstrate financial need to qualify for the loan. PLUS, or parent loans, are also unsubsidized.
Eligibility for an Unsubsidized Loan
To receive a subsidized or unsubsidized loan, you must be enrolled at least half-time at a school that is part of the government’s Direct Loan program. The program needs to end in a degree or certificate given to you by the school. You can obtain an unsubsidized loan even if you don’t demonstrate any financial need.
How to Get an Unsubsidized Loan
First, you need to submit the FAFSA, which is The Free Application for Federal Student Aid. In this report, you’ll see how much federal aid you can receive. If there are grants or scholarships in the report, be sure to accept those first because you don’t have to pay them back. Then, take any work-study that’s offered and then the school will determine how much you can borrow on an annual basis.
If you are receiving a Direct Loan for the first time, you will also need to:
• Undergo entrance counseling, which is a tool to learn how to repay the loan
• Sign a Master Promissory Note, which means that you agree to the loan terms.
The financial aid office at your school will also have any additional steps required to obtain your loan.
When you loan is disbursed, the school applies it to tuition, fees, boarding, and any other school charges. Additional loan funds in excess of this amount will be returned to you.
Borrowing Limits on Unsubsidized Loans
For unsubsidized loans, the limits can vary, but they’re usually higher than the limits on subsidized loans. If you’re a dependent undergrad, your limit is $31,000 for the entirety of your time in school. For independent undergrads, the limits are $57,500 and $138,500 for graduate students.
How Much to Borrow.
You may be offered more than you need so assess your student loan offers carefully. You don’t need to borrow the entire amount because it could be more than you can afford to pay back. Have a frank and honest discussion with yourself and your family before you borrow money to find out how much is realistic for you to pay off after graduation. You cannot borrow more than the actual cost of attendance.
Canceling an Unsubsidized Loan
If you don’t need all or part of the loan any longer, you can cancel it by notifying your school if the loan hasn’t been disbursed yet. After it is disbursed, you only have a limited amount of time in which to cancel it. Check your promissory note for details on what you need to do to cancel your loan.
Origination Fees for Unsubsidized Loans
Other than knowing the definition of an unsubsidized loan, it’s important to learn the fees associated with these loans. Loans disbursed after October 1, 2016 and before October 1, 2017 have 1.069% in origination fees. For loans disbursed on or after October 1, 2017 and before October 1, 2018, the fee is 1.066%.
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