Confusion/questions about Federal Direct Subsidized Loan

Paying for College
1

Hello, everyone.

I was recently accepted into my dream transfer school. They offered us a generous amount of financial aid, considering the base price (tuition, room, books, supplies) amounts to $70,000. However, while my family has previously been weary of borrowing loans, we are considering doing so if we decide that I can attend this school.

We have been offered a $3500 Federal Direct Subsidized Loan, as well as a $2000 Unsubsidized Loan. However, to our understanding, we would far prefer taking the subsidized loan. Still, we have some questions regarding how it will affect our payment. (Some of these might be silly questions, but again, we have never considered borrowing loans before.)

1.) Am I correct in assuming that we can choose to borrow the subsidized loan, but not the unsubsidized?

2.) How frequently does the interest accrue? Monthly?

3.) I still do not understand the idea of deferment. Say I were to attend my new school for 3.5 years, because I am most likely going to need an extra semester. Would my period of deferment then be that period of time (~42 months), because that is when the federal government is covering my interest?

4.) If I am able to pick up summer internships that pay sufficiently, would I have the option to quit borrowing the loan?

In short, is using the $3500 Federal Direct Subsidized Loan a wise decision that will not screw my future self/my family financially? I feel somewhat optimistic with the employability/healthy starting salaries of my Computer Science major, but I want to make sure of what we are doing.

All clarification will be greatly appreciated. Thank you!

2

Yes…you are correct. Yo7 can take the subsidized portion only.

For the subsidized loan…NO interest accrues while you are in college.

Your direct loan payments are deferred until 6 months after you stop attending college.

Yes…you don’t have to continue to borrow. I believe you can also pay off the principal.

If you need the loans to attend this college, then you NEED the loans! You will have $11,000 in loans for three years. Less than $150 a month in repayment for about 10 years.

3

The interest accrues daily, but the government pays the interest that accrues while you are a student, plus 6 months after. That’s the subsidized part. So if you were to borrow today and go to school for the next 15 years, you’d start paying the original $3500 back in 15.5 years. The $3500 subsidized amount will go to $4500 as a sophomore, and $5500 as a jr and sr., or $$19k in subsidized loans.

It is a good deal. If you don’t need the money, borrow it and put it in a separate savings account. You may need it in the future, or may need it to get started when you graduate (car, apt, moving exp). If you never need it, pay it all back and you should come out close to even (there is a 1% origination fee).

4

There are restrictions to the deferment. I don’t have them memorized but I believe you have to be attending college at least half time. If your education proceeds in a fairly normal time frame, no problem.

If you’re not sure if you need a loan, I agree with the suggestions to take the subsidized loan at least, at least for the first semester or two. Bank it or pay it back early. You will lose only the origination fee, but it will be good insurance just in case you need it.

We got my D through freshman year without loans but it was difficult. The next year, I had her take only the subsidized loans and it has made a huge difference in my budget and peace of mind.

5

My D is ready to accept her financial aid package, and she is able to decline the unsubsidized loan. But I do have a question: Is she able to decline the subsidized loan after she accepts it? She is waiting for notification on two outside scholarships, and if she is awarded either one, then there will be no need of the subsidized loan. The school’s website is unclear.

6

Yes, you can decline it after accepting it, or you can pay it back within 120 days of disbursement at no cost to you. Or you can decline it now and then ask for it to be reinstated at any time during the school year if you find you need it.

One of my kids has only taken the subsidized loan for the final 3 years. Of the $15,500, she has over $7000 left. She’s using it to get settled into her new job by buying a car, paying for the insurance, paying the first month’s rent and security deposit, and best of all, getting to take a month before starting the job. She may try to pay the loans back faster than required, but will make that decision in 6 months when repayment starts.

It is really nice to have a cushion. This kid is not a spender, so having the money in an account wasn’t a temptation to spend it on splurges. Other kid? Different story.

7

@thumper1 @twoinanddone @alooknac Thank you all for the very helpful insight!

8

Thanks, @twoinanddone.