Explain subsidized loans to me?

Paying for College
1

I just want to make sure I get this right - on a subsidized student loan, the govt pays for the interest while the student is studying (and 6 months after graduating).
So if the student had $10,000 in subsidized loans over the course of their college undergrad, upon graduation they only at that point owe $10,000?
Can they pay it off then (anyone know if pre-paying is usually option)?
How hard is it to deal with the entity that processes payments - from a ranking of easy to nightmare?

Thanks!

2

Yes, if the loans are subsidized, when you graduate you owe what you’ve borrowed. My daughter did that and her initial balance on her loan was $15,500.

You can always pay a student loan without a prepayment penalty. They are simple interest.

You have no control over who services your student loan. There are several companies that do.

3

thanks!
I’ve been thinking about having D take the subsidized loan portion and basically using it as a way to give us another “installment” on tuition payments.
Basically we just need to file FAFSA every year to get it offered, right?
Is there any catch or danger I’m missing?

4

You have to qualify for the loans to be subsidized. If you do not have financial need, you can still take the loans but they will not be subsidized.

There is also a 1% origination fee, so even a subsidized loan is not totally free.

5

yes, I saw on her Fin Aid that thy did offer her a mix of sub & unsub

6

My D took the subsidized loans. She had to do entrance counseling and sign MPN (master promissarry note) the first year for it.

She will owe the amount she borrowed, but her student account will be credited the amount borrowed minus the origination fee (about 1%).

The amount of subsidized loan offered can change every year, if need based on FAFSA EFC changes.

Also outside scholarships can reduce the amount of loan that can be subsidized, if they reduce need.

7

She can accept, decline, reduce the loans she wants to take.

8

We had planned to do what you are talking about - take the subsidized loan and then pay it off at graduation. However, DS selected the university that gave him the lowest COA after merit award, and they did not offer him a subsidized loan. I kinda assumed he’d be offered it everywhere, but it wasn’t that way.

9

FOLLOW UP QUESTION:

Let’s say as a freshman, the student borrows $2000 subsidized.
Then next year parents earn more money, and student is no longer offered subsidized loans. Does the $2000 she already borrowed the previous year remain subsidized, or will it be recategorized as unsubsidized and start accruing interest?

10

It remains subsidized.