College Life

Subsidized vs. Unsubsidized and Other Student Loan Gibberish

student loan terms

As we approach the start of another academic year, more families are learning about student loans. Education finance can be confusing and, if you’re like most people, you’ve probably stumbled over the terminology. Before signing on the dotted line, here are 12 student loan terms you need to know.

TERM No. 1 & 2: Subsidized vs. Unsubsidized Loans

Both are federal loans which are listed on your award letter, as long as you filled out the FAFSA in the fall. However, there’s a few key differences between the two:

  • Direct Subsidized Loan: The government pays the interest while the student is in school at least half-time and during deferment periods.
  • Direct Unsubsidized Loan: Interest is charged during all periods.

No payments are required on either loan until the student drops below half-time enrollment or is in deferment.

TERM No. 3: Annual Percentage Rate

The Annual Percentage Rate (APR) is the amount of interest paid annually on the total loan amount, averaged over the full term of the loan. It takes into account principal, interest rate, fees and length of repayment. With variable loans, the APR will fluctuate with the interest rate.

For the iHELP product, variable rates range from 4.48 – 8.99% and fixed rates range from 5.52 – 9.09%. Plus, there’s no origination fees, no application fees, and no repayment or prepayment fees.

TERM No. 4 & 5: Fixed Rate vs. Variable Rate

The interest rate of a loan can be variable or fixed, and each come with their own advantages:

  • Fixed Rate: The interest rate will not change over the life of the loan, meaning your monthly payments remain consistent as well. There may be an opportunity to lock in a low interest rate, but there’s also the chance market rates decrease, in which a variable rate could have been the cheaper option.
  • Variable Rate: The interest rate may increase or decrease based on the economy, so your monthly payment also has the potential to change. Generally, variable rates start lower than fixed interest rate options, but it’s possible the interest rate will increase in the long term.

Since it’s hard to predict the future, the choice comes down to your appetite for risk.

Combining the best of both worlds, iHELP has a new Fixed Hybrid Loan. With this option, your initial interest rate is fixed for 5 years from the first disbursement date, and has the potential to change with the Quarterly Prime Rate.

TERM No. 6: Rate Index

A rate index serves as a benchmark to calculate the interest rate on variable rate loans. Two common rate indices are the prime rate and the LIBOR:

  • Prime rate: The prime rate is an index published in the Wall Street Journal that is used to set rates on loans. If the prime rate goes up, the interest rate on the variable rate student loan will go up, too.
  • LIBOR: The London Interbank Offer Rate (LIBOR) is a 3 month rate index that is also published in the Wall Street Journal. Variable rates may increase or decrease based on the changes in the LIBOR.

To find out the Rate Index used to calculate interest on your loan, read through your loan details and promissory note. Also feel free to give us a call and we’ll be happy to walk you through it.

TERM No. 7: Cost of Attendance

It’s no secret, college is spendy. The Cost of Attendance (COA) is the total price to attend a school, including tuition, room and board, books, supplies and transportation.

Your financial aid package may not cover the entire Cost of Attendance, so a private student loan can fill the gap.

TERM No. 8: Expected Family Contribution

The Expected Family Contribution (EFC) is the amount the federal government thinks you can pay based on the information you provided on the FAFSA. The good news? If that number is much higher than your family is comfortable or capable of managing, you’re not alone and you have options. An iHELP Private Student Loan can be used to cover your Expected Family Contribution.

TERM No. 9: Disbursement

A disbursement is when a lender sends funds to the school to finance the borrower’s education. We always check with the school before disbursing funds to be sure students aren’t borrowing more than is needed. Student loans generally begin accruing interest upon disbursement so if a the loan isn’t subsidized a student should consider making just interest-only payments while in school to lower the overall cost of their loan.

 TERM No. 10: ACH Discount

Some lenders offer a discount for setting your payments up to be automatically withdrawn from your checking or savings account. iHELP borrowers are eligible to receive a 0.25% Auto Pay Interest Rate Discount for payments made via automatic debit.

TERM No. 11: Deferment

Deferment is the period when a borrower isn’t required to pay interest or principal on a loan. When you take out an iHELP loan, payments aren’t required while the student is enrolled at least half-time or during their 6 month grace period.

iHELP also offers forbearance options for borrowers experiencing temporary financial hardship. If you’re in danger of missing a payment, let us know as soon as possible so we can work with you to find the best solution.

TERM No. 12: Servicer

The servicer is the company you send your student loan payments to. It may or may not be the company where you took out the loans, and with many lenders the servicer often changes throughout the life of the loan.

At iHELP, we want to make your life easy, so we originate and service all of our loans. If you have any questions, let us know! After four decades in the industry, we know a thing or two about student loans.

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