Federal government student loans offer subsidized and unsecured loans. The primary difference between the two is that subsidized student loans are usually subsidized by the government directly and unsecured loans are not based on economic need but instead the interest is charged by the government. It is important for people to understand the difference between subsidized student loans and unsecured student loans before taking out either of them.
A federal student loan is given to a person who is enrolled in an accredited educational institution or university. The person who receives the loan can pay it off with his income from any source. This is the most common type of federal student loan. Students have to take out subsidized student loans if they wish to go to school because this type of federal loans helps offset the costs of tuition fees.
Federal student loan has a fixed interest rate, while the federal loans that are offered by private lenders vary in terms of interest rates and time period. For people who want to go to college but do not have any extra cash to pay for the tuition fees, they may opt for the subsidized student loans. The amount of subsidized loan depends on the financial need of the student. There are some students who get federal loans even before they enter into an academic program and this is called subsidized first-time-student loans.
The federal student loans have a longer grace period than the private ones. Federal student loans have a grace period that can be extended up to six years.
Government student loans have a long repayment period, which starts at six years and it will not be increased during the tenure of the loan. The repayment term is decided after analyzing the financial capability of the borrower and after consultation with the lender. The length of loan depends on the income of the borrower and his parents. If there is a discrepancy in these two figures, the loan amount will differ.
The government student loans come with lower interest rate than the private loans because they are not subsidized. Government loans are made available to people who are working. or studying while also on part-time jobs. People who have some extra money and do not have sufficient resources to pay for their education can apply for these loans, but they have to be able to pay the loan installments.
In spite of the lower interest rate, there is a higher amount required as the monthly installments of the loan are much higher than the private loans. This is because these loans come with an interest rate that is higher than the private loans and because of this reason, there is a fixed monthly repayment period.
Subsidized loans will have more flexibility than unsecured student loans because the monthly installments do not have to be repaid. However, a person who gets an unsecured loan will have to repay the loan on the due date. The federal loans will not have a fixed monthly payment and hence you have to pay the loan in a lump sum after graduation.
As the borrower is financially capable, subsidized student loans have the advantage over unsubsidized student loans as they are easier to get. These loans have greater flexibility and the borrower will not have to submit any hardship case to the lender if he fails to pay the loan. The loan repayment duration will be increased if there is a discrepancy between the income of the borrower and his parents.
There are also some government student loans, which are not offered to the borrowers who have been awarded scholarship and need-based grant money. and the same can be obtained only from the private lender.
The private lender will give loans to students who have not completed their studies and he will require proof that the borrower is in school and has a steady job. In such circumstances, the lender may increase the repayment term and the interest rate as long as he finds that the borrower is making monthly payments.
The best way to find out which type of loan you want to take is to talk to a private lender and ask him which types of subsidized loans he provides and which types of unsubsidized student loans he offers. You can also go online and compare rates offered by various private lenders and use search engines to find out whether you are eligible for any of the loans.