There is a lot to know in the vast world that encompasses college student loans. Perkins, FFEL, public, private; all of these terms and more will become your friends (or enemies) as you begin accruing student loan debt balances.

One thing you should know if you have student loans or are planning to get them is that there are subsidized loans and unsubsidized loans. It’s important to know the difference between the two because knowing so affects you directly. Well, it affects your money directly, anyway.

Since interest is calculated differently on the two types of loans, not knowing the difference can cost you money. Knowing the difference between a subsidized loan and an unsubsidized loan can change the way you make loan payments too.

By managing your payments correctly, you can minimize the amount of interest you pay on your loans. You can also speed up the time it takes to pay them off. Here are some differences between the two, as well as some tips for paying off your student loans faster.

Use these tips to your advantage so you can best utilize your money to pay for college. We’ll start by talking about subsidized loans.

What is a Direct Subsidized Loan?

A Direct Subsidized Loan is a loan with the following characteristics:

  • Available to undergraduate students with financial need
  • Your school determines the amount you can borrow (up to the maximum of your financial need)
  • The U.S. Department of Education pays the interest on a Direct Subsidized Loan

Note that the Department of Education only pays the interest on your Direct Subsidized Loan under certain circumstances.

First, you need to be in school at least half-time. Second, they do pay the interest during a six-month grace period after you leave school. This applies whether you graduate or whether you drop out.

Also, they will pay the interest during a qualified deferment period as well. Note that there is an exception to this rule. The exception applies depending on when you took out your loan.

The exception is as follows: If you obtained your loan (i.e. took your first disbursement) between July 1, 2012 and July 1, 2014, you are responsible for paying the interest during the grace period.

Those are the basics of the subsidized loan. And now for some basic information regarding unsubsidized loans.

What is a Direct Unsubsidized Loan?

Direct Unsubsidized Loans are loans with the following characteristics:

  • Available to graduate and undergraduate students with no requirement to demonstrate financial need
  • Your school determines the amount you can borrow (based on the cost of your schooling and taking into consideration other financial aid you may have received)
  • You are responsible for paying the interest on a Direct Unsubsidized Loan in all circumstances – even while you’re still a student
  • If you choose not to pay the interest during all periods, the accruing interest will be added to the principal balance on your loan

As you can see, there can potentially be a huge financial difference between the two types of loans. Furthermore, there are other differences between the two types of student loans. These differences lie mainly in the amount a person can borrow using the two different loan types.

The chart below shares the loan limits of the two types of loans for undergraduate students.

The Dependent Students qualify for the Direct Subsidized Loans. Note that Dependent Students may qualify for the Unsubsidized loans as well. The Independent Students qualify only for the Direct Unsubsidized Loans.

Direct Unsubsidized Loans carry much higher loan limits than Direct Subsidized Loans. Furthermore, the total aggregate loan limit for Dependent Students is only $31,000, including $23,000 maximum in subsidized loans.

For Independent Students the aggregate loan limit is $57,000, with the same $23,000 maximum in subsidized loans.

Graduate student loan limits are high. Graduate students can obtain up to $138,500 in total loans, with $65,500 maximum in subsidized loans. The subsidized loans would have had to come from their undergraduate years since graduate programs don’t qualify for subsidized loans.

As you can see, there are some important differences between the two loan types. Now let’s go over some of the pros and cons of each type of loan.

Pros and Cons of Direct Subsidized Loans

Pros of Direct Subsidized Loans

  • The government pays the interest on your loans while you are in school (as long as you’re enrolled at least half-time)
  • You won’t have any payments due on the loan until six months after you graduate (or discontinue school classes)
  • The government pays the interest on your loans during deferment and forbearance periods (in many cases)

Cons of Direct Subsidized Loans

  • The total aggregate loan limit for Direct Subsidized Loans is much lower
  • Graduate students can’t qualify for Direct Subsidized Loans
  • Only students who demonstrate financial need can qualify for Direct Subsidized Loans

Pros and Cons of Direct Unsubsidized Loans

Pros of Direct Unsubsidized Loans

  • The total aggregate loan limit for Direct Unsubsidized Loans is much higher
  • Direct Subsidized Loans can be used for Graduate programs
  • There is no need to demonstrate a financial need in order to qualify for Direct Subsidized Loans

Cons of Direct Unsubsidized Loans

  • The government does not pay the interest on your loans – while in school or any other time
  • There is no grace period that allows you to not pay the interest on your loan

Both types of loans have their positive and negative aspects. But no matter which type of loan you choose, you can be certain of one thing. Student loan payments can put a damper on your lifestyle.

Student Loans Can Be A Burden

No matter which type of student loan you qualify for, there’s no doubting that student loans can be a burden to students.

According to Private Student Loans Guru, the amount of student loan debt graduates are being burdened with is increasing. As of 2017, the average college graduate left school with $39,400 in student loan debt.

Reports indicate that the total U.S. student loan outstanding balance now sits at over $1.3 trillion. That’s a lot of debt.

For many college graduates, taking on student loan debt is a non-negotiable. After all, college is expensive. But having student loan debt doesn’t mean that you have to stay in debt.

Unfortunately, many student loan agreements have long loan terms. I’ve seen loans with amortization periods of ten years and more.

If you refinance or take a forbearance or deferment period, the term on your student loan can last even longer. So, how can you go about paying off your student loan debt faster?

How to Pay Student Loan Debt off Faster

Here are some tips for paying your student loan debt off faster and saving yourself money in the process. Take advantage of one or more of these options to pay student loans off quicker.

1. Refinance Your Student Loans When it Makes Sense

Some student loans have very reasonable interest rates. Other loans have much higher interest rates. If you have a higher interest rate student loan or loans, it might make sense to refinance them.

Refinancing your student loans can make sense on a number of levels. First, it may allow you to consolidate your loans and make one big payment instead of several smaller payments.

Second, refinancing could shorten your loan term and result in less interest paid. Third, refinancing your loans could help you lower your interest rate as a whole.

Companies such as Credible may be able to help you refinance your student loans and save money at the same time. In fact, Credible offers loans starting as low as 4.99 percent interest.

Consider talking to a loan refinance specialist to see if you can lower the interest rates on your student loans. Shortening your loan term and combining your student loans into one loan may be options as well.

2. Make Extra Payments

You can also pay off your loans faster by making additional payments. Every little bit helps – even an extra $50 a month put toward the principal balance of your loan.

If you’re having trouble finding extra money to put toward your loan balance, consider these money-saving options. They might help you have more extra cash to pay your student loans off early.

Live with Your Parents

I know, I know – you’ve finally gotten a “real” job and I’m telling you to keep (or return to) living with your parents??  For some people this may seem like a step backward.

However, the minimized (or “no”) rent you’ll pay living with parents means you’ll potentially have a lot of extra money. Commit to putting that extra cash toward making large principal payments on your student loans.

By doing so, you could have the loans paid off much faster. And while it may not sound fun for you to live with your parents, try to think long-term. By saving money on rent you could potentially have your student loans paid off in a couple of years or so.

Wouldn’t it be nice to get out on your own without large student loan balances looming over your head? At least consider the option of living with your parents. The short-term inconvenience will probably be worth it.

Go on a Challenge Everything Budget

Have you heard of the Challenge Everything Budget? The Challenge Everything budget works like this:

First, you write down every monthly expense you have. Include your basic student loan payments and all living expenses like rent and transportation costs. Don’t forget to add in other costs such as entertainment monies, medical expenses and food costs.

Next, go through every single line item on your budget and try to figure out a way to reduce or eliminate that cost.

For instance, you can’t eliminate your car insurance expense (unless you sell your car), but you may be able to reduce it. Check around with a few insurance carriers and see if you can get a lower rate.

Some other ideas? Drop your gym membership and start working out at home or outside. Start going to a cheaper salon – or cut your hair yourself.

Commit to not spending money on entertainment costs such as eating out. Instead, meet with friends at someone’s house for a movie night or potluck dinner.

As you lower or eliminate each expense, take all of the money you’re saving and put it toward your loans. To help with discouragement, remind yourself that this is only a temporary budget. You can go back to more liberal spending once your loans are paid off – and you’ll be debt free to boot!

Earn More Money

Another way you can help pay your student loans off quicker is to earn more money. Here are some ideas to help you bring in more cash to put toward your loan balances.

Ask for Additional Money-Making Opportunities at Work

If you’re an hourly and not a salaried employee, you may be able to get additional hours at your job. Ask your boss if there are overtime hours available.

Or, ask if there are any special projects you may be able to participate in that pay you extra cash. Asking for additional opportunities at work is probably the easiest route for making extra money. Fortunately, it’s not the only route.

Get a Second Job

You could pick up a second job for a short period of time. Maybe you could work delivering pizzas for a while. Or, you could find work at a restaurant or retail store.

Think about the types of jobs you might like to do and apply to coordinating businesses. Even ten or twenty hours a week at a second job will increase cash flow – especially if you earn tips.

Not interested in working for “the man” any more than you have to? How about side hustling?

Start a Side Hustle

Side hustles are forms of income that allow you to earn more money – on your own. The nice thing about side hustles is that you get to be your own boss.

You choose the hours you work and the type of work you do. However, side hustling does come with responsibilities that traditional jobs don’t.

When you side hustle, you generally work as an independent contractor. This means you’re responsible for keeping track of your own income and expenses. You’re also responsible for paying your own taxes on the side hustle income you make.

If that doesn’t bother you, go ahead and consider these ideas for bringing in some side hustle income.

Drive for Uber or Lyft

Have you thought about being a rideshare driver? When you sign up to drive for Uber or Lyft, you can set your own hours, bringing people to their destinations.

You might bring someone to the grocery store, to or from a party, or to a medical appointment. If you like the idea of meeting new people as you drive them around, this could be a good side hustle for you.

Check out this article to learn more about driving for Uber or Lyft.

Offer Services Around Town

Another popular side hustle entails offering services in your own city. Here are some good side hustle ideas for helping those around you with daily tasks.

  • Babysitting or nannying
  • House cleaning or organizing
  • Lawn mowing or yard cleanup
  • Mobile car wash services
  • Pet walking, clean up, or babysitting services

Think about things those around you might need or want help with, and then advertise your services with flyers or emails.

Work Online as a Freelancer

Another way you could earn some side hustle money is to start freelancing from home. Freelancers can do a variety of jobs from the comfort of their home office. Here are some ideas for freelancing jobs from home.

  • Freelance writer
  • Website designer/creator
  • Graphic design specialist
  • Virtual assistant
  • Blog manager
  • Data entry person

For more on potential side hustles that could earn you extra money, see this article on creative side hustles.

By taking a few steps to help pay off your student loans faster, you’ll be free of debt before you know it.

So far, we’ve talked about the difference between Subsidized/Unsubsidized loans and talked about how to pay loans off faster.

How to Minimize or Avoid Student Loan Debt Before You Start School

Now let’s talk a little bit about how to avoid student loan debt in the first place. Believe or not, there are some steps you can take to avoid having to use student loans. Or at the very least, to minimize the amount of loans you need to take out. Here are some ideas.

If you’ve not started school yet, be encouraged that there are ways you can avoid student loan debt altogether – or at least minimize it. Here are some options.

Consider Taking Your Generals at a Community College

Community colleges are often much cheaper than traditional schools. By taking your general courses at a community college, you can save thousands of dollars. In the Midwestern state where I live, here is the difference in cost between community, state and private colleges.

  • Community College: $179.71 per credit
  • State University:       $470.77 per credit
  • Private College:        $788.61 per credit

Over the course of a year or two, that’s a large monetary savings. Note: before you sign up at that community college, check with the state or private college you’re attending.

Not all colleges accept transfer credits from community colleges. You’ll want to be sure you’re taking courses that can transfer before you start taking your generals at a community college.

Get Someone Else to Pay for Your College Costs

There are also ways to have another entity pay for your college costs. For instance, if you join a branch of the U.S. military, you may be able to qualify to have the military pay for your college tuition.

Depending on which branch of the military you served, how long you served and other factors, college tuition help can be available. In certain cases, your work in the military can be counted as college credit as well.

Not interested in joining the military? How about working for a company that pays college tuition costs as a part of its benefits package? Generally, this applies to larger companies that have employees attending college for a coordinating degree.

For instance, let’s say you work at an engineering company as an administrative assistant. If you’re attending school at night for an engineering degree, you may qualify to have your college tuition reimbursed.

Or, let’s say you work as a customer service rep at a bank. If you’re attending college to get a degree in finance, you may qualify to have your tuition reimbursed.  These types of benefits vary from company to company. Because of this, you’ll want to make sure you work at a company that offers college tuition reimbursement.

Check specifically about working with companies that specialize in the field you’re interested in pursuing your degree in.

Research Several Colleges

One interesting thing about college tuition is that the cheapest colleges aren’t always cheapest. Here’s what I mean.

A state college in your area may have a tuition of $20k per year. A private college in your area may have tuition of $50k per year. However, that’s not always the only deciding factor when it comes to cost.

Private colleges often have more financial aid available than a state college does. A private college might have access to more scholarships, for instance. Or it may have implemented more in-school work choices.

For this reason, it’s smart to research several college options and not only the less expensive ones. “Expensive” after applying all available scholarships, financial aid and other programs might turn out to look different than you expected.

Save Before You Go

Another option for avoiding student loan debt is to work and save your earnings before you go to college. If you save while working your way through high school, and then save some more while working after high school, you could amass enough in savings to avoid having to take out school loans.

I realize this may delay your college attendance by a couple of years but think of how much money you’d save. You would have to pay any interest at all on student loans. Bonus: You’d graduate completely free of student loan debt.

Whether you qualify or use Subsidized Loans or Unsubsidized Loans, there’s no doubt college is costly. By utilizing the information above, you can pay for college smarter – and more cost effectively.

How are you paying – or did you pay – for college? What advice do you have for those seeking student loans? Share your thoughts in the comments below. We’d love to hear from you!

Join Our Newsletter

Get more content like this delivered to your email.