Question

Eligibility for a subsidized Stafford loan is based on current financial need. However, both subsidized and unsubsidized Stafford loans are repaid out of future income. Given this, do you see a possible objection to having two types?

Answer 1

Subsidized Stafford Loan implies that it does not accrue interest while the student is pursuing his studies in school at least half time or deferment period. The term deferment period means that the student must start, to make his repayment of loans, either after you complete the studies or drop below half-time enrollment. On the contrary, Unsubsidized Stafford loan, interest is chargeable from the time of disbursement of loan amount. But, the subsidy really helps a student to repay instead of obtaining a loan. However, the credit worthiness of the student to repay his borrowed sum purely hinges on his future job. For instance, a student Mr. A who is need of current financial aid and aspire to pursue a career in a high paying area. In the situation, subsidy won’t be useful, as it is difficult for him to obtain it. Whereas, a student Mr. B, who has no emergency of financial need is preparing for low-paying job. In this situation, Unsubsidized loan would add to the woes of student B, as his income out of future employment is expected to be low and Unsubsidized loan charges interest from the borrower.