Subsidized vs. Unsubsidized Direct Loans | www.hampshire.edu

Subsidized vs. Unsubsidized Direct Loans

There are two types of Direct student loans: subsidized and unsubsidized.

The financial aid office will determine if the Direct loan is subsidized or unsubsidized or if the loan will be partially subsidized and unsubsidized. We use a calculation to determine the type of loan: Cost of Attendance (COA) less the Expected Family Contribution (EFC) found on your valid Student Aid Report less the amount of your other financial aid, not including other loans (grants, scholarships, work study award). The result of this calculation will determine the type of Direct loan. For example, if the COA is $65,000, the EFC is $35,000, and the other financial aid totals $24,500 the calculation is as follows:  $65,000 - $35,000 - $24,500 = $5500. This means that a first year student with this calculation would be able to borrow the maximum $3,500 in a subsidized loan, a second year student may borrow up to the $4,500 maximum, and a third and fourth year student may borrow the maximum subsidized loan up to $5,500. If the resulting calculation is less than the maximum amount, then the student would only be eligible to borrow that amount; for example, if the calculation is $2,250, then the student may borrow a $2,250 subsidized loan and borrow the balance of the maximum loan in an unsubsidized loan, in this case a first year student would be able to borrow $1,250 in an unsubsidized loan. If the calculation result is $0 or less, then the student is not eligible for any subsidized loan.

Students who qualify for a subsidized Direct loan are not charged interest while enrolled in college during the six-month grace period, and during deferments. Students must demonstrate need for this loan by completing the Free Application for Federal Student Aid (FAFSA).

NOTE: For Direct subsidized student loans borrowed on or after July 1, 2012 and before July 1, 2014, the interest subsidy will not be available during the six-month grace period. This means that interest WILL be charged during the grace period for subsidized loans borrowed during this time period.

The unsubsidized Direct loan is available to students who do not qualify for the subsidized Direct loan as described above. Students apply for the non-need based unsubsidized Direct loan by completing the Free Application for Federal Student Aid (FAFSA). This loan is available to all students regardless of need. Annual loan limits are the same, less any subsidized Direct loans borrowed.

Interest is charged on an unsubsidized Direct loan from the time Hampshire receives the funds. Only payments on the principal are deferred until six months after the student ceases to be enrolled at least half-time. Students receive an interest-only bill every six months; students may pay all, some, or none of the accumulated interest. Any unpaid interest will be added to the amount borrowed (interest capitalization). This capitalization will result in higher monthly payments later. We recommend that students pay the interest while enrolled, if possible.

If a parent is denied a federal PLUS loan, the student borrower becomes eligible for an additional federal loan in the form of an unsubsidized Direct loan. The additional unsubsidized loan is in the student's name only. First- and second-year students may borrow up to an additional $4,000 for the year; others may borrow up to an additional $5,000 for the year. Students would need to request this additional loan by sending an email to the loan counselor from their Hampshire email accounts.

 

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Loan Counselor
Hampshire College
893 West Street
Amherst, MA 01002