T.F. of Glen Cove, NY writes:

What's the difference between a subsidized Stafford Loan and an unsubsidized Stafford loan?

The College Whisperer responds:

Interest, my friend. Interest.

Stafford loans are low-interest loans (5.6% for undergraduate, subsidized; 6.8% for graduate and all unsubsidized), the lender nowadays being the federal government (Direct student loans) through the Department of Education, private lenders having been legislated out of the Stafford loan market.

Aside from interest rates charged on such student loans, there's the benefit of deferment -- of payment, on both subsidized and unsubsidized loans (typically, repayment plans do not kick in until 6 months after the borrower is no longer attending school at least half-time), and (now hear this) of the accrual of interest while the student is in school.

On an unsubsidized Stafford loan, while repayment is deferred until after graduation, interest accrues from the date loan money is disbursed.

On a subsidized Stafford loan, both repayment AND the accrual of interest is deferred until after graduation. [Technically, the feds pay the interest that accrues on your subsidized loan while you are in school, but who cares, as long as the money does not come out of your pocket?]

In other words, if you are awarded a subsidized Stafford loan by your college of choice, the money is, in effect, INTEREST-FREE while you remain in school at least half-time.

Not bad, right? Like having a rich Uncle pay your college tuition tab, or at least a part of it, offering you the option to repay the loan, in full, without a penny in interest, within six months of graduation.

Should you take the Stafford loan, if offered as part of the school's financial aid package? Certainly, if you need it. Never borrow money needlessly, as the old saying goes, or recklessly, for that matter. Still, as concerns Stafford loans, there's no better bargain around. Interest rates are relatively low. The student builds credit-worthiness. Repayment, and interest on the subsidized loan, is deferred. The loan can, under certain circumstances, be forgiven.

Even students (and their parents) who don't need the money to cover tuition might consider taking the subsidized Stafford loan, if offered. [Subsidized Stafford loans are usually offered on the basis of financial need, which varies from school to school, based upon the computation of your EFC -- Expected Family Contribution.] The loan pays part of the tuition bill. There's no interest until after graduation. Your money stays in the bank, earning interest, for four years or more. You repay upon graduation (or sooner, without penalty), interest-free.

Gee. You may actually make a dollar or two on the deal! Talk about a gift horse from your Uncle Sam...

How does one apply for a Stafford loan? Simple. Complete and submit the FAFSA Online. Your school's financial aid office will consider the student for a Stafford loan (subsidized, unsubsidized, or a combination of both) as part of the financial aid award.

To learn more about Stafford loans, and other college lending programs, visit StaffordLoan.com and The William D. Ford Federal Direct Loan Program.

In these difficult economic times, with college costs continuing to rise substantially, thoughtful and creative financing is in order, and a strategic plan on just how you're going to pay for college, getting the most bang for your buck, is a must.

From advice on saving for college in the long-run and short-term, to finding the money to pay next semester's tuition bill, College Connection can help. Give us a call at 516-345-8766 today for a free telephone consultation.

The views and opinions expressed in this blog are solely those of The College Whisperer.
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