There are a lot of questions going around right now about student loans. The political landscape is filled with ideas about how to address outstanding student loan debt. In the midst of all of the potential changes, you might wonder if you have to repay your own loans. In particular, you might wonder about any differences that exist between subsidized and unsubsidized loans.
Subsidized vs. Unsubsidized Loans for Students
First of all, you’ll need to know the difference between subsidized and unsubsidized loans.
Similarities of Subsidized and Unsubsidized Loans
- These are both types of student loans.
- Both of these loans are issued by the federal government.
- You must be enrolled in higher education with at least part-time credits in order to receive one of these loans.
- You are allowed six months grace period after school ends before you have to begin repaying either loan.
- Both types of loans have several repayment options.
Differences between Subsidized and Unsubsidized Loans
Here are the important differences between the two types of student federal loans:
- You must meet an income requirement of financial need in order to qualify for a subsidized loan.
- Subsidized loans are for undergraduate education only. Unsubsidized loans are for both undergraduate and graduate school programs.
- Typically you are able to access more money with unsubsidized loans.
But here is the really big difference: you do not pay the interest on subsidized loans. The US Department of Education covers that interest for you. In contrast, you do pay interest on unsubsidized loans. Therefore, you have to repay more than the cost of the original loan for an unsubsidized loan.
If you have the option, get a subsidized loan. You can also get both. For example, I got as much money as possible from subsidized loans for my undergraduate education. Then I supplemented that with additional funds from unsubsidized loans, for which I have to pay the interest. When I went to graduate school, I got additional unsubsidized loans.
You Have to Repay All Student Loans … But You Have Options
There are many potential changes taking place in the political landscape when it comes to student loans. For example, one of the COVID stimulus payment plans recommended a stipulation that $10000 of student loans be wiped out across the board for all borrowers. Note: that did not pass! But it is one of many ideas floating around the political landscape in regards to student loans.
That said, you do currently need to repay student loans. You have to repay both subsidized and unsubsidized student loans. With unsubsidized loans, you also have to pay interest on the loan.
Remember, a loan is money that you borrow. It might seem like “free money” at the time. Young students especially feel this way. However, it’s borrowed money. You accepted it with the stipulation that you would repay that loan. If you have unsubsidized loans, you further agreed to pay interest on the loan.
Options for Repayment, Deferment, or Forbearance
That said, student loans are some of the easiest loans to work with when you don’t have enough money to make your full payment. You can contact the lender and figure out the best option given your current financial state.
Here are a few common options available to people with unsubsidized loans:
- Standard repayment plan in which you pay a specific amount every month for a set amount of time (typically ten years)
- Graduated repayment plan in which you pay less per month at the start and gradually increase over that ten year period
- Extended repayment plan in which either the standard or graduated repayment plan is extended over the course of 25 years
- Income-based repayment plans, of which there are several, allowing you to pay based on what you earn
Options When You Can’t Make Payments
Many people find themselves unable to make their student loan payments for one reason or another. That is particularly true during times of financial stress, such as the COVID-19 pandemic. You might have the option to apply for deferment or forbearance. There are different types of each but essentially both are methods of delaying your payment for a period time.
Note that with unsubsidized loans you are still responsible for the interest that accrues during the period of non-payment. If you are able to pay the interest as it accrues, rather that postponing those payments, it is in your best financial interest to do so.
You Do Not Have to Pay Unsubsidized Loans During the COVID-19 Pandemic
Here’s something important to learn about: There are special payment rules in place during the coronavirus pandemic. This is part of the CARES Act.
First of all, all student loan repayments are automatically canceled through 9/30/20. Therefore, you do not have to pay back unsubsidized loans (or any student loans) during this time. You don’t have to do anything to qualify this; it is automatic for everyone.
That said, you can still choose to make your payments if you want to. If you can, then you should. You’ll repay your debt more quickly.
0% Interest During COVID-19 on Some Loans
Do be aware that certain student loans are set at 0% interest during this COVID-19 “special rules” period. Therefore, although you usually accrue interest on unsubsidized loans, it’s possible that you will not during this time.
Generally speaking, you will not accrue interest on your loans during this time if the loans are serviced directly by the Education Department. This may include Direct Loans, FFEL, and Perkins Loans – both defaulted and non-defaulted loans. It also includes some defaulted HEAL loans.
That said, it is very important to check with your lender to make sure that you clearly understand whether or not your loans accrue interest during this period. Remember that if you have loans that aren’t covered under these temporary 0% rules, you might be able to qualify for an Education Department student debt consolidation loan through which the rules would then apply.
Again, if you can afford to pay your loans, do so. If you ave unsubsidized loans that qualify for zero interest during this period, then any payment you make will go directly to pay down the principal on your balance.
What If I Just Learned I Didn’t Need to Make Payments During COVID-19?
CARES went into effect in March. The 0% interest and no-payment period extends through September. It’s already June. What if you didn’t realize this and have been making payments? First, check to see that you’ve really made them. If you had them set to auto-debit, chances are that the automated withdrawal was canceled without you doing anything.
That said, if you did make payments since CARES went into effect, and you weren’t required to, you can actually get that money back! If you are in a dire financial situation and really need that money, contact your loan servicer to request the refund.
In summary, unsubsidized loans do need to be repaid eventually. However, during COVID-19, you might not have to make payments. You might not even accrue interest. Even after the CARES Act ends and you ave to make payments again, you have options. These include lower payments, deferment, and forbearance options. Check with your student loan provider to review all of your options.