A Federal Direct Unsubsidized Loan is a federal student loan that an eligible undergraduate student, graduate student, or professional student may use to help pay any higher education expense. But unlike a Direct Subsidised Loan, in particular, there isn’t any proof of financial need necessary for one to get a Direct Unsubsidized Loan.
Federal Direct Unsubsidized Loan
A Federal Direct Unsubsidized Loan is a type of direct cash award that can be given, by the U.S. Department of Education, to any student who seeks help in meeting their higher education expenses. An unsubsidized loan is only the opposite of a subsidised loan for the reason that it is not granted out of financial needs.
Accordingly, this type of a loan is open to any undergraduate or graduate student who applies, wishes to or intends to apply. With an unsubsidized loan, the interest starts to accumulate at the time that the loan is initially disbursed; in other words, interest is accrued on top of what is owed. As a student, one has an option with this type of loan.
The interest that one accrues with this type of loan can be paid on his own before the actual repayment date. This would at least avoid the balance being more than the principle that was given in the first place. Option 2 is to let the interest add up to the principal balance— basically increasing the total of what is owed—by capitalising it.
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Eligibility for the Federal Direct Unsubsidized Loan
You must meet the following eligibility requirements in order to apply for the Federal Direct Unsubsidized Loan.
- You must be either a U.S. citizen or an eligible non-citizen.
- You must be registered or accepted for enrollment in a participating school/college/university.
- Satisfactory Academic Progress: If you are currently attending, then you must be making satisfactory academic progress as defined by your school.
Federal Direct Unsubsidized Loan Amount
The direct unsubsidised loan amounts are:
- Your Year in School: The increased loan limits for your subsidised and unsubsidized loans depend on your level of dependency.
- Dependency Status: The increased loan limits are higher for dependent students than independent students.
- Enrollment Status: Higher loan limits are available for those who attend school full-time than part-time students.
Loan Limits for Dependent Undergraduate Students
- First-Year and Second-Year Undergraduate students: Your aggregate limit is $9,500—subsidised and unsubsidized combined for each academic year.
- Subsidised and Unsubsidized Loans for Graduate, Sub, and Fourth-Year Undergraduates–Aggregate Limit: $10,500 per year.
- Loan limits for Independent or Undergraduate students dependent on Graduate/Professional students:
- Annual Loan Limit: $20,500
- Aggregate Loan Limit: $140,000 in direct subsection loans
Loan limits for Independent students and Dependent Graduate/ Professional students:
- Annual Loan Limit: $20,500
- No aggregate loan limit
How Interest is calculated on the Federal Direct Unsubsidized Loans?
Interest is simply the cost of a loan. For Federal Direct Unsubsidized Loans, interest works like this:
- It accrues interest immediately: The interest on your loan accrues from the time of disbursement to your school.
- It can accumulate: Interest accrues throughout your time in school, grace periods and deferment periods.
- Added to Principal: The interest that accrues gets added to the principal balance of your loan.
- Through capitalization of the interest, the interest accrued gets added back to the original balance, and you end up paying interest on interest.
Interest Capitalization
- Capitalising interest means adding accrued interest to the principal balance of your loan.
- Interest is usually capitalised at the end of each grace period or deferment period.
- Effect: Excellent interest is added to the principal balance of the loan each time interest capitalised. This makes the total amount of the loan you have to repay be more.
Interest Rates
- Fixed Interest Rate: The loan is not subsidised and the interest accumulates from the amount you borrow. The interest rate is set for the life of the loan.
- Interest Rate: Change: The interest rate is changed and set each year by congress.
Making Interest Payments while in School
- Interest is not required: You are not required to make payments on the interest but you can pay it if you wish.
- Benefits: Making interest payments while in school can lower the overall amount paid over the term of your loan.
- Figure out the Impact: Interest goes a long way over time, literally meaning that many times the total paid back is much more than just the original borrowed. Important to understand.
- Make Payments: Even little ones, payments to keep your loan balance in check.
Applying for a Federal Direct Unsubsidized Loan
You will be required to submit the Free Application for Federal Student Aid (FAFSA) in applying for this loan.
- Visit the official website of FAFSA, FAFSA.gov.
- Get one for both the student and one parent in the case of a dependent student. It will be needed to open and sign the FAFSA.
- Have your Social Security number, driver’s licence number, and tax information ready.
- Write correct and complete information both about oneself as a student and one’s parents if the case so requires about the financial status, and Submit.
- Once you have submitted the FAFSA, it is sent to the financial aid office at your school of choice where you would want to receive a copy of your summary.
- The school will determine your eligibility for various forms of financial aid including unsubsidized loans.
- You can either accept or opt-out of the unsubsidized loan.
- The money is disbursed in exchange for cash to your college; its value is nearly equivalent to your college expenses.