2 Basic Federal Student Loans — Should I Accept Both?

Whether you are a student getting ready for college, a current college student, or a parent of one, you may be eligible for a federal student loan. Although your financial aid office will issue you student loans according to the documents you submit, you have the option to reject or consult with your advisor for another type. You may ask — why would I reject any student loans? Isn’t more the better? Different types of student loans come with different obligations on the repayment process that you may rather not accept.

Here are the two types of basic student loans:

Direct Subsidized Loan

The direct subsidized loan is given based on financial need — which the Department of Education defines as “The difference between the cost of attendance at your school and you expected family contribution.” In other words, the documents you issue to your school, like your family’s tax filings, are essential.

A key factor to this type of loan is that the federal government will pay for the interest accrued while the student is in college, and for the first six months after you leave.

Direct Unsubsidized Loan

The direct unsubsidized loan is not given based on financial need, but rather to undergraduate or graduate students. This amount is determined by your financial aid advisor based on any other loans you are borrowing and the school’s cost of attendance.

As attractive as this loan sounds, the direct unsubsidized loan will be charged a fixed interest rate from the moment it is issued, until it is the loan is completely paid off. In other words, if the loan is issued in your freshman year of a 4-year college education, the interest will begin to accrue from that moment, throughout all your college years and the entire lifetime of the loan.

However, as of date, the Biden administration has halted federal student loan payments and has kept the interest rate at 0% until September 30th, 2021.

Understanding the differences between the two basic student loans will help you plan out your future finances and capabilities more easily. Remember — you have the choice to reject them if you find that they won’t be appropriate for your situation. Let your college financial aid office know, and they will have to follow your choices.