The Benefits of Unsubsidized Private Student Loans

Unsubsidized private student loans are the most common form offered by non-government lenders. Subsidized loans offer students the ability to not make payments while attending school; they also tend to have very low interest rates. Subsidized loans are typically only available to needy individuals through government programs. Private student loans tend to be unsubsidized, but this has many benefits as well.

Credit Boost

The main reason to seek an unsubsidized loan is the positive affect it will have on your credit. When you take a higher risk loan, you will see a higher benefit through a credit boost as you make your monthly payments. Low risk loans, such as subsidized or federally guaranteed loans, will not have as strong an impact, even when paid off on time. Students in particular should be looking for the best way to build their credit. Most have very short credit histories. They will have a hard time getting a car loan or home loan upon graduating. Student loans, though, are a great way to build that credit score. By taking and successfully paying off a private student loan, a student will appear to be a strong borrower in the eyes of a future lender.

More Flexibility

Subsidized loans mean the lender is making some concessions to provide you with the financing. In fact, the lender may not be making a penny on the loan; the interest rate will just be covering the rate of inflation. The lender is also taking on a large risk by delaying your repayment requirements. In return for all of these downsides, a lender will want you to offer some guarantees of your own. This means you will not likely be able to modify the loan in the future. Loan modification includes refinancing, settlement or consolidation. If you want to do any of these with a federal loan, you must do so with another federal loan program. Further, there are a lot of limitations on the modification. Since you are taking the loan at a young age with a short credit history, you will not get the best loan terms. Locking in these terms early can be detrimental to you at a later date. With a private, unsubsidized loan, though, you will have more flexibility for modification in the future. 

Fewer Application Requirements

There are a host of application requirements for subsidized loans. First, they are need based, meaning you will have to qualify based on your financial position. Second, they are typically given on a semester or quarter basis. This means you have to reapply for funding at each semester. With a private loan, you may receive financing for the entire cost of education. You may also receive extra cash to meet living expenses while you attend college. Subsidized loans are more restrictive. You can only apply for the amount you will need for costs directly related to education, such as tuition and book costs. In some cases, room and board will not even be covered in the application.


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