Which Loan Type Provides Interest Subsidy? (TOP 5 Tips)

If you’re paying off your federal loans under one of those three plans, the following loans are eligible for the interest subsidy: Direct Subsidized Loans. Direct Unsubsidized Loans. Direct GradPLUS Loans.

  • Direct subsidized loans. Direct subsidized loans are one of the best options you can use to pay for school. With subsidized loans, the Department of Education pays the interest that accrues while you’re in school at least half time, during your grace period after graduation, and if you put your loans into deferment.

What kind of loan provides interest subsidy?

Subsidized Loans are loans for undergraduate students with financial need, as determined by your cost of attendance minus expected family contribution and other financial aid (such as grants or scholarships). Subsidized Loans do not accrue interest while you are in school at least half-time or during deferment periods.

What is an interest subsidy?

What’s an interest subsidy? It’s a benefit that the government provides by paying off some or all of your student loan interest. If your loans are on income-driven repayment, the government might cover some of the interest that accrues.

What is Repaye subsidy?

REPAYE offers an interest subsidy that could lead to lower total repayment costs. If your monthly payment doesn’t cover the full amount of interest that accrues on the loan (negative amortization), then the government will pay 50% of the difference.

What is a Direct Stafford loan?

Direct Stafford Loans, from the William D. Ford Federal Direct Loan (Direct Loan) Program, are low-interest loans for eligible students to help cover the cost of higher education at a four-year college or university, community college, or trade, career, or technical school.

Is a Plus loan a federal loan?

Direct PLUS Loans are federal loans that graduate or professional students and parents of dependent undergraduate students can use to help pay for college or career school. PLUS loans can help pay for education expenses not covered by other financial aid.

What is a fed direct unsub loan?

A Federal Direct Unsubsidized Loan is a non-need based, low-interest loan with flexible repayment options. The Department of Education has information about eligibility, borrowing limits, interest and fees, repayment information, and the latest federal student aid updates.

What is direct loan subsidized?

A Direct Subsidized Loan is a type of federal student loans (made through the William D. Ford Federal Direct Loan Program) where a borrower isn’t generally responsible for paying interest while in an in-school, grace*, or deferment period. Your school will tell you how to accept all or a part of the loan.

What is interest subsidy under PMAY?

Interest subsidy is at the rate of 6.50% for the initial amount of Rs 6 lakhs. Repayment. Maximum repayment term is up to 30 years. Interest subsidy is available only for 20 years.

Which type of loan is based on financial need?

Direct Subsidized Loans are loans made to eligible undergraduate students who demonstrate financial need to help cover the costs of higher education at a college or career school.

Is IBR or Repaye better?

IBR – Which should you choose? In some respects, Pay As You Earn Plan comes out as the clear winner against IBR. It lowers your monthly payments to just 10% of your discretionary income and offers loan forgiveness after 20 years, no matter when you borrowed your loans.

Which loans are eligible for Repaye?

REPAYE is available for Direct Loan borrowers only, and eligible loan types include: Direct Subsidized/Unsubsidized, Direct GradPLUS, and Direct Consolidation loans. Direct Parent PLUS loans, defaulted loans and consolidation loans that repaid a Parent PLUS loan cannot be repaid under the REPAYE plan.

Does interest capitalize with Repaye?

Under REPAYE, unpaid interest will be capitalized if you leave the repayment plan or fail to recertify your income. If your monthly payment under an income-contingent repayment (ICR) plan is less than the amount of interest that accrues, unpaid interest will be capitalized annually.

What is the Federal Student Loan Interest Subsidy and How Can You Get It?

Are you struggling to make a large monthly student loan payment while earning a wage that isn’t as high as you’d anticipated it would be? If this is the case, income-driven repayment for your federal student loans may be a lifesaver for you. The federal government will cut your monthly federal student loan payment to a more reasonable amount based on your income under these arrangements. Despite the fact that it may appear to be a good deal, there might be severe pitfalls that should be avoided.

Even when you are paying your monthly payments, this is how your loan may balloon dramatically over the long run.

Interest subsidies for some student loans that are paid off under these arrangements are provided by the government in order to alleviate the situation.

What is the student loan interest subsidy?

According to certain income-driven repayment schemes, the government will pay a portion of the interest you owe if you meet the requirements. Depending on a number of conditions, the subsidy may be sufficient to pay some or all of the interest expense. Typically, however, the interest subsidy does not endure for the whole time period during which you are making your payments.

Which loans qualify for the student loan interest subsidy?

Not all loans are eligible for income-driven repayment, and not all loans are eligible for the government subsidy. There are four different types of income-based repayment options available. One in every three of these repayment options—Pay as You Earn (PAYE), Revised Pay as You Earn (REPAYE), and Income-Based Repayment (IBR)—allows the federal government to subsidize the cost of interest payments in certain circumstances. If you are repaying your federal student loans under one of those three programs, the following loans are eligible for the interest subsidy: if you are repaying your federal student loans under one of those three plans, the following loans are eligible for the interest subsidy:

  • Student loans from direct lenders include subsidized loans from direct lenders, unsubsidized loans from direct lenders, GradPLUS loans from direct lenders, and consolidation loans from direct lenders that do not include Parent PLUS loans.

Which loans do not qualify for the student loan interest subsidy?

If you pay off your student loans using an Income-Contingent Repayment (ICR) plan, you will not be eligible for a federal interest subsidy. Furthermore, the following types of loans are not eligible for income-based repayment, regardless of the income-based repayment plan you are on:

  • Defaulted loans (including Parent PLUS Loans)
  • Consolidated loans (which include Parent PLUS Loans)
  • Unconsolidated Perkins Loans
  • Private student loans

You can, however, include a Perkins loan if it has been merged into a Direct Consolidation Loan along with other federal loans that are qualified for inclusion. For further information, see: Everything You Need to Know About Student Loan Consolidation.

How can I get the student loan interest subsidy?

The method through which you receive the subsidies differs from plan to plan. Here’s how it works for each of the payment options.

Revised Pay-as-You-Earn (REPAYE)

REPAYE allows you to repay your student loans over a 20-year term (for undergraduate loans) or a 25-year period (for graduate student loans) (for graduate loans).

Your interest will be paid by the government if your monthly minimum payment is insufficient to cover all of your interest. The following are the amounts that the government will pay:

  • Over subsidized loans, this includes all of the interest that is not covered by your payment for a three-year period. In the following months, the government will reimburse you for 50% of the interest that exceeds the amount of your contribution.
  • For unsubsidized loans, you will be responsible for 50 percent of the interest over and above what your payment covers.

Pay-as-You-Earn (PAYE)

You will have 20 years to pay off your debt if you follow this strategy. If your new monthly payment is insufficient to cover your interest, the government will make the following payments:

  • The following are the terms of subsidized loans: For a three-year period, the government pays 100 percent of the difference between your total interest and what your payment covers
  • In the case of unsubsidized loans, the government does not pay any interest.

Income-Based Repayment (IBR)

In addition, this plan offers a payment duration of 20 years.

  • The following are the terms of subsidized loans: For a three-year period, the government pays 100 percent of the difference between your total interest and what your payment covers
  • In the case of unsubsidized loans, the government does not pay any interest.

The amount of interest you owe and whether your payments are covering it are critical considerations when using an income-based repayment plan. However, the government will assist in some circumstances. Hopefully, with interest subsidies, you’ll be able to pay off your loan without having the interest eat away at your savings and retirement accounts every month. Look at this article as well:Is Public Service Loan Forgiveness All That It’s Cracked Up to Be? 4 Things You Should Be Aware Of

Forbes Guide To Subsidized And Unsubsidized Federal Student Loans

Note from the editors: We receive a commission from affiliate links on Forbes Advisor. The thoughts and ratings of our editors are not influenced by commissions. You should choose federal direct subsidized and unsubsidized student loans as your first choice if you need to borrow money to pay for your college education expenses. They’re often the most affordable student loan choice, and subsidized loans in particular provide the most generous repayment schedules if you meet the requirements. The Free Application for Federal Student Aid, sometimes known as the FAFSA, is a form that undergraduate students can use to establish their need for financial assistance.

Here’s how they stack up against one another.

What Is a Subsidized Loan?

Direct subsidized loans, as the name indicates, are a form of federal student loan that includes a subsidy for students, making them one of the most affordable loan alternatives available. It is the William D. Ford Federal Direct Loan Program, an initiative of the United States Department of Education, that is responsible for making these loans available. Direct loans may also be referred to by their former name, Stafford loans, in some cases. Interest begins to accrue as soon as you take out a subsidized loan, but the government assumes responsibility for paying it on your behalf.

That implies that after the six-month period is finished, there will be no interest to be added to the principle, and you will simply be required to repay the amount you borrowed plus the original interest rate.

  • While you are enrolled at least half-time in school
  • In the six-month grace period that follows graduation, leaving school, or beginning to attend less than half-time, you may: Deferment is a form of payment delay term that you may be qualified for if you are jobless, having cancer treatment, meeting income limits that qualify you for economic hardship, or in certain other conditions.

Interest will accumulate, on the other hand, during periods of forbearance, which is a distinct form of payment postponement from the one described above. A short modification in the legislative budget in 2012 mandated that borrowers who took out direct subsidized loans between July 1, 2012, and June 30, 2014 be responsible for the interest that accrued during their grace period.

If the interest earned does not qualify for the government subsidy, it will be added to the principle balance.

What Is an Unsubsidized Loan?

Unsubsidized loans, in contrast to subsidized loans, do not include any form of interest assistance. These loans collect interest at all times, which the borrower is responsible for paying at the end of the loan term. However, unlike subsidized loans, you are not required to begin repaying unsubsidized loans until after your grace period has expired. At that point, any interest that has accumulated will be capitalized, which means that it will be added to the principle sum of the loan you initially took out.

In light of the information you submitted on the FAFSA, you will not be required to show financial need at this time.

Parents, on the other hand, are not eligible for direct unsubsidized loans.

How Much Can You Borrow in Subsidized and Unsubsidized Loans?

The amount of money you can borrow is determined by two factors: your year in school and whether or not you are financially independent of your parents. The FAFSA asks a series of questions to establish eligibility. Both direct subsidized and unsubsidized loans have yearly borrowing restrictions that are quite modest. Unlike PLUS loans, which allow you to borrow up to the complete cost of attendance (which includes tuition, fees, room and board, books, transportation and other expenses), private student loans allow you to borrow up to the total cost of attendance, less any other financial help you’ve received.

If you or your parent owes more than $2,000 in debt that is at least 90 days past due, or if you or your parent has had a bankruptcy, foreclosure, or certain other bad entries on your credit record within the last five years, you or your parent will not pass the PLUS loan credit check.

Department of Education, you may still be able to qualify for a PLUS loan.

That often entails taking a specific amount of credits each semester or maintaining a specific grade point average.

Key Differences: Subsidized vs. Unsubsidized Loans

Federal direct subsidized and unsubsidized loans have significant disparities in terms of interest rates and repayment terms.

However, because they are less expensive and do not need a credit check, both are still preferable than PLUS loans or private loans in the vast majority of circumstances.

How Do You Pay Back Unsubsidized and Subsidized Student Loans?

There are various alternatives for repaying federal student loans. Borrowers who take out direct subsidized or unsubsidized loans are eligible for all federal repayment plans, however you may be required to fulfill additional requirements for certain income-driven repayment plans. The 10-year standard repayment plan, which divides the total into 120 monthly payments over 10 years, will be automatically applied unless you pick another choice at the mandatoryexit counselingsession. Among your other repayment alternatives are as follows:

  • Repayment on a graduated basis. You’ll make lower installments at initially, and then your payments will gradually climb. The plan has a 10-year duration and is based on income-driven repayment. In general, monthly payments are dependent on income under the following four plans: income-based repayment, income-contingent repayment, Pay As You Earn (PAYE), and Revised Pay As You Earn (RPAE) (REPAYE). For help, speak with your student loan servicer —the firm that oversees your payments—to determine which choice is the greatest fit for your situation. The plan requires you to make payments for 20 or 25 years, depending on the plan, and the remaining of the sum will be forgiven if there is any money left over at the conclusion of the period. Repayment period was extended. For the next 25 years, you’ll make fixed or progressive monthly payments. This is not the best option because you will pay a significant amount in interest and will not be eligible for debt forgiveness at the end of the term.

If you need to put your payments on hold, you can contact your servicer and request a deferral or forbearance for a period of up to three years. If you have subsidized student loans and are eligible for deferral, this is the more affordable option. However, either program will provide you with some breathing room to pay off other debts for the time being. A repayment plan based on income is preferable in the case of long-term financial difficulties.

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How Do You Apply For Federal Direct Loans?

To apply for any federal student loan — or any federal financial aid, for that matter — you must complete the Free Application for Federal Student Aid (FAFSA) for each year you are enrolled in college. The FAFSA will assist colleges in determining whether or not you have sufficient financial need to qualify for subsidized loans. After you have been approved, the school will give you an award letter that will include the loan kinds and amounts that it recommends you borrow. You are not compelled to take out the maximum amount of loans that have been given to you, and you are free to accept only a fraction of the loans that have been provided to you if you do not require them.

After that, you’ll be required to sign a document outlining the conditions of your loan.

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Subsidized vs. Unsubsidized Student Loans—What’s Best for You?

Because of the escalating cost of a college education, more students than ever are taking out student loans to finance their expenditures. While some students choose to take out loans from private lenders, an estimated 43.4 million borrowers will have federal student loans by 2021, according to the Department of Education. Federal Direct Loans are available in two flavors: subsidized and unsubsidized. Both types of loans provide a number of advantages, including flexible repayment choices, low interest rates, the ability to combine loans, and forbearance and deferral programs, among other things.

We concentrate on the most important characteristics of each form of loan so that you can choose which is best for you.

Key Takeaways

  • Federal student loans can be subsidized or unsubsidized, depending on the circumstances. The financial necessity of a student determines his or her eligibility for subsidized loans. Despite the fact that both forms of loans must be repaid with interest, the government contributes to a portion of the interest payments on subsidized loans. For undergraduate students, loan restrictions are different from those for graduate students. Generally speaking, interest rates on federal student loans are lower than those on private student loans.

Who Qualifies for Federal Direct Loans?

Borrowers of federally subsidized and unsubsidized loans must complete the following standards in order to receive their loans:

  • In least half-time enrollment at a school that participates in the Federal Direct Loan program is required. Citizenship in the United States or eligible non-citizenship
  • A valid Social Security number (SSN) is required for employment. Academic advancement that is satisfactory
  • Possession of a high school diploma or an equivalent qualification There have been no defaults on any existing government loans.

The only undergraduate students who can qualify for direct subsidized loans are those who can establish a financial need. Direct unsubsidized loans are available to both undergraduate and graduate students, and there is no need that they demonstrate financial need. As long as you’re in school at least half-time, the government will cover the interest on your loan, and it will continue to do so for the remainder of your six-month grace period after you graduate. During the period of deferral, the government will also make a payment on your loan.

This form requests information on your income and assets, as well as the assets and income of your parents.

In response to the coronavirus crisis, former President Trump suspended interest on student loans from federal agencies (until Jan.

In addition, this covers all loans made under the Federal Family Education Loan Program as of March 30, 2021.

How Much Can You Borrow?

The Federal Direct Loan program includes yearly borrowing restrictions for both subsidized and unsubsidized loans, with the maximum amount you may borrow each year being determined by your income. There is also a maximum amount of money that may be borrowed in total.

Undergraduate Students

If they are still financially reliant on their parents, first-year undergraduate students can borrow a total of $5,500 in subsidized and unsubsidized loans if they are still financially dependent on their parents. Subsidized loans are only available for $3,500 of that total. During their first year of undergraduate education, independent students and dependent students whose parents do not qualify for Direct PLUS loans can borrow up to $9,500. Subsidized loans are likewise restricted to a maximum of $3,500 of that total.

The overall aggregate loan maximum for dependent students is $23,000 in subsidized loans, with an additional $8,000 in unsubsidized loans permitted in addition.

Graduate Students

Graduate and professional students, including those who borrowed during their undergraduate studies, have a total borrowing limit of $138,500 in direct loans, with a maximum subsidy of $65,500. Students in graduate and professional programs, on the other hand, have been eligible solely for unsubsidized loans since 2012.

First-Time Borrowers

Direct subsidized loans are only available to students who fall into this group between July 1, 2013 and July 1, 2021, and there is a limit to the number of academic years you may get them within that time period. The maximum eligible time is 150 percent of the whole length of your program as announced on your website. To put it another way, if you’re enrolled in a four-year degree program, the maximum amount of time you may get direct subsidized loans is six. Direct unsubsidized loans are exempt from this restriction.

Interest on Subsidized and Unsubsidized Loans

Loans from the federal government are well-known for having some of the lowest interest rates available, especially when contrasted to commercial lenders that may charge borrowers a double-digit annual percentage rate (APR), such as the following:

  • Direct subsidized and unsubsidized loans disbursed on or after July 1, 2021, and before the start of the 2022 school year have an annual percentage rate (APR) of 3.73 percent for undergraduate students
  • The APR on unsubsidized loans for graduate and professional students is 5.28 percent. And, unlike certain private student loans, those interest rates are set, which means they will not vary throughout the course of the loan’s term.

Student loan interest rates on direct subsidized and unsubsidized loans are 3.73 percent for undergraduate students and 5.28 percent for graduate and professional students for loans granted on or after July 1, 2021, but before the start of the school year on July 1, 2022, are as follows: And, unlike certain private student loans, those interest rates are set, which means they will not alter throughout the course of the loan’s term; and

Repaying Subsidized and Unsubsidized Loans

When the time comes for you to begin repaying your loans, you’ll have a number of alternatives to choose from.

Unless you specifically request an alternative repayment plan from your lender, you will be automatically enrolled in the Standard Repayment Plan. This plan allows you to repay your debt over a period of up to ten years, with equal monthly installments.

Graduated Repayment Plan

The Graduated Repayment Plan, on the other hand, starts off with lesser installments and gradually increases them over the course of time. A 10-year term is available with this plan as well, however you will pay more than you would with the Standard option due to the way payments are structured in comparison to the Standard. Additionally, there are numerous income-driven repayment options available for students who want greater flexibility in the amount they pay each month.

Income-Based Repayment

Income-based repayment, which sets your payments at 10 percent to 15 percent of your monthly discretionary income and lets you to spread repayment over a period of 20 or 25 years, is the most common kind of repayment. The benefit of income-driven programs is that they have the potential to reduce your monthly cost. While it is true that the longer it takes you to pay off your debts, the more money you will end up paying in total interest. Furthermore, if your repayment plan permits you to have a portion of your loan total forgiven, you may be required to disclose that as taxable income.

As of 2021, you will be able to deduct up to $2,500 in interest paid on a qualifying student loan, and you will not be required to itemize your deductions in order to take advantage of this deduction.

If you paid $600 or more in student loan interest for the year, you would get Form 1098-E from your loan servicer, which you may use to file your taxes.

  • For subsidized loans taken out while you are in school and for the first six months following graduation, the government covers the interest. Loans that are subsidized have lower interest rates than loans that are not subsidized. It is possible to use unsubsidized loans to pay for graduate education. When applying for an unsubsidized loan, you are not required to demonstrate financial necessity.
  • Federally backed loans are only available to students enrolled in undergraduate programs. In order to qualify for a discounted loan, you must establish a financial need. The government does not reimburse the borrower for any interest that has accumulated on an unsubsidized loan. In comparison to subsidized loans, unsubsidized loans have a higher interest rate.

What Is the Difference Between Federal Direct Subsidized and Unsubsidized Loans?

Federal government loans of both sorts must be repaid with interest and must be repaid within a certain time frame. The government, on the other hand, will cover a portion of the interest payments on subsidized loans.

Are Unsubsidized Loans Bad?

There are several advantages to taking out an unsubsidized loan. They can be utilized for both undergraduate and graduate studies, and students do not have to demonstrate financial need in order to be eligible. Please keep in mind that the interest begins to accrue the moment you take out the loan; however, you will not be required to pay the loans back until after you graduate, and, unlike private loans, there are no credit checks performed when you apply for federal student loans.

Are Subsidized Loans Better Than Unsubsidized Ones?

If you qualify for subsidized loans, you will reap a slew of advantages. While subsidized loans are not always preferable to unsubsidized loans, they do provide borrowers a cheaper interest rate than their unsubsidized counterparts, which is a significant advantage. The interest on these loans is covered by the government while a student is in school and during the six-month grace period following graduation. Subsidized loans, on the other hand, are only offered to undergraduate students who can establish a need for financial assistance.

How Do You Pay Back Subsidized Loans?

You have the option to repay your discounted loan at any time. The majority of students begin repaying their student loans after they graduate, and the first payment is due six months after graduation, during which time the federal government continues to pay the interest on the loans.

The Standard Repayment Plan will be assigned to you when your loan enters the repayment phase, but you have the option to request an alternative payment plan at any time. In the majority of circumstances, borrowers may make their loan payments online through the website of their loan servicer.

The Bottom Line

Direct subsidized and unsubsidized loans are also available to assist with the cost of college. Just keep in mind that any sort of loan will ultimately have to be returned, and that the interest will be compounded. As a result, carefully consider how much money you’ll need to borrow and which repayment plan is most likely to work best for your financial situation.

Subsidized and Unsubsidized Loans

Students who have financial need, as assessed by your cost of attendance less your estimated family contribution and other financial help, are eligible for subsidized loans for undergraduate students (such as grants or scholarships). Subsidized Loans do not accumulate interest while you are enrolled at least half-time in school or while you are on deferral from school. Students who are enrolled in undergraduate or graduate programs can apply for unsubsidized loans, which are not dependent on a student’s financial need.

Interest is accrued during the periods of in-school attendance, deferment, and grace.

You have the option of either paying the interest or allowing it to accrue (accumulate) and be capitalized (deferred) (that is, added to the principal amount of your loan).

More information on the capitalization of interest may be found in the section under “Debt ManagementStudent Loans.”

Loan Type Borrower Interest Rate(for loans disbursed from 7/1/20 to 7/1/21) Interest Rate(for loans disbursed from 7/1/21 to 7/1/22) Origination Fee(for loans disbursed from 10/1/20 to 10/1/22)
Subsidized Student 2.75% Fixed for undergraduates 3.73% Fixed for undergraduates 1.057%
Unsubsidized Student 2.75% Fixed for undergraduates 3.73% Fixed for undergraduates 1.057%
Unsubsidized Grad Student 4.30% Fixed for graduates 5.28% Fixed for graduates 1.057%
PLUS Parent PLUS 5.30% Fixed 6.28% Fixed 4.228%
PLUS Grad PLUS 5.30% Fixed 6.28% Fixed 4.228%
Requirement
Deferment You may receive a deferment if you are enrolled in school at least half-time or for unemployment or economic hardship
Repayment There is a 6 month grace period that starts the day after you graduate, leave school, or drop below half-time enrollment. You do not have to begin making payments until your grace period ends.

At StudentAid.gov, you may find more information on student loans, program criteria, and managing your loan payments.

How Much Can I Borrow?

Depending on your grade level and dependence status, you may be able to borrow up to a certain amount per academic year. Check out the table below regarding borrowing restrictions on a yearly and aggregate (lifetime) basis. Because of your planned family contribution or the amount of additional financial help you are getting, you may not be eligible to borrow the entire yearly loan amount. To see examples of how your Subsidized or Unsubsidized award amount will be decided, please visit our award examples page.

If you are a first-time borrower who began receiving Direct Subsidized Loans on or after July 1, 2013, there is a limit to the maximum amount of time (measured in academic years) that you can receive these loans.

Direct Unsubsidized Loans and Direct PLUS Loans are the exceptions.

If this restriction applies to you, you will not be eligible to receive Direct Subsidized Loans for more than 150 percent of the term of your program as advertised. For additional information, contact your financial aid adviser or visit StudentAid.gov.

Subsidized and Unsubsidized Loan Examples

Example 1:Alberta Gator is a first-year dependent undergraduate student enrolled in the University of Alberta. During the Fall and Spring terms, her total tuition and fees will be $17,600. Alberta’s estimated family contribution (EFC) is $10,000, with the remainder of her financial aid (grants, scholarships, and work study) totaling $9,000 in other financial assistance. Consequently, she is ineligible for need-based, subsidised loans because Alberta’s EFC and other financial aid exceed her estimated cost of attendance.

The amount of money she would receive would be $5,500 dollars.

Subsidized and Unsubsidized Loan Limits

The following is an example of a dependent undergraduate student: Alberta Gator. Fall and Spring semesters will cost her $17,600 in tuition and fees. Approximately $10,000 is Alberta’s anticipated family contribution (EFC), with the remaining $9,000 coming from various sources of financial assistance (such as grants, scholarships, and work study). Consequently, she is ineligible for need-based, subsidised loans because Alberta’s EFC and other financial aid exceed her Cost of Attendance. An Unsubsidized Loan, on the other hand, is available to her.

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Despite the fact that her cost of attendance minus other financial assistance totals $8,600, she is only eligible for loans up to the amount of her yearly loan ceiling (which is $5,500 for a first-year dependent undergraduate student.)

Undergraduate Annual Loan Limits Dependent Student Independent Student
First Year $5,500 (Up to $3,500 Sub) $9,500 (Up to $3,500 Sub)
Second Year $6,500 (Up to $4,500 Sub) $10,500 (Up to $4,500 Sub)
Third, Fourth, and Fifth Year $7,500 (Up to $5,500 Sub) $12,500 (Up to $5,500 Sub)
Undergraduate Aggregate Loan Limits $31,000 (Up to $23,000 Sub) $57,500 (Up to $23,000 Sub)
Graduate Annual Loan Limits Unsubsidized*
Graduate $20,500
Graduate Aggregate Loan Limits $138,500 (Up to $65,500 Sub)
Pharmacy* (Graduate) Annual Loan Limits $33,000
Health Professions* Annual Loan Limits $40,500
Health Professions* Aggregate Loan Limits $224,000 (Up to $65,500 Sub)

* Some professional students may be eligible for greater unsubsidized loan limitations depending on their field of study. To find out if you are qualified, speak with your financial advisor.

To Apply for a Subsidized and Unsubsidized Loan:

  1. To apply for financial help, fill out the FAFSA (Free Application for Federal Student Aid) at studentaid.gov

To be Eligible You Must:

  1. You must be a citizen, national, or permanent resident of the United States
  2. You must be enrolled at least half-time
  3. You must not have defaulted on or owed a refund to any previous aid program
  4. And you must continue to make sufficient academic progress

To Receive Your Subsidized or Unsubsidized Loan:

  1. Navigate to ONE.UF and click on “Login with Gatorlink.” Enter your Gatorlink username and password to gain access. To view your summary, navigate to the “Financial Aid” area of the new window that displays and pick the right award year under “View Your Summary.” The Federal Direct Subsidized or Unsubsidized Loans section of your assistance summary at ONE.UF can be found by scrolling down to the bottom of the page. By clicking on the “Take Action” option next to the loan, you can accept, decrease, or deny the loan. The amount of money that students borrow should be limited to what they require. Complete the Entrance Counseling process by utilizing
  2. Complete a Master Promissory Note (MPN) by include the following information:

Subsidized Vs. Unsubsidized Loans

Federal student loans for college expenses will fall into one of two major categories: subsidized and unsubsidized. If you take out federal student loans to pay for education, your loans will fall into one of these categories. The most significant distinction between the two is that Direct Subsidized Loans do not charge borrowers interest during specific times of deferral, but Direct Unsubsidized Loans do charge borrowers interest throughout the length of the loan.

Subsidized vs. unsubsidized loans

Subsidized and unsubsidized federal student loans are available to help you pay for education. If you take out federal student loans to help pay for college, the loans are divided in two categories: subsidized and unsubsidized. For the most part, Direct Subsidized Loans do not charge interest to borrowers during specified periods of deferment, although Direct Unsubsidized Loans do charge interest for the whole term of postponement.

Direct Unsubsidized Loans Direct Subsidized Loans
Who pays interest costs? The borrower While the student is enrolled, during grace periods and during deferment: The U.S. Department of EducationDuring normal repayment and forbearances: The borrower
What’s the aggregate maximum limit? Dependent undergraduate students: $31,000Independent undergraduate students: $57,500Graduate students: $138,500 Undergraduate students (dependent and independent): $23,000
What do you need to qualify? Does not require proof of financial need Must demonstrate financial need
Who can borrow? Undergraduate students, graduate students and professional degree students Undergraduate students
Are there extra costs involved? Loan fee: 1.057% for loans disbursed on or after Oct. 1, 2020, and before Oct. 1, 2022 Loan fee: 1.057% for loans disbursed on or after Oct. 1, 2020, and before Oct. 1, 2022
What is the maximum eligibility period? No limit No limit for first-time borrowers on or after July 1, 2021

What is a subsidized loan?

A Direct Subsidized Loan is a sort of federal student loan that undergraduate students can qualify for if they can demonstrate a need for assistance. They are less expensive than Direct Unsubsidized Loans since interest is not accrued on them during specified time periods, making them a more affordable option.

In addition to paying interest on subsidized loans while the borrower is enrolled at least half-time in school, during a six-month grace period following graduation, and during deferral periods, the United States Department of Education pays interest on unsubsidized loans.

Pros of subsidized federal student loans

  • In the United States, a Direct Subsidized Loan is a sort of federal student loan that undergraduate students may qualify for if they demonstrate financial need. As a result of the fact that interest does not accumulate on them during particular time periods, they are less expensive than Direct Unsubsidized Loans. In addition to paying interest on subsidized loans while the borrower is enrolled at least half-time in school, during a six-month grace period after graduation, and during deferral periods, the United States Department of Education pays interest on unsubsidized loans.

Cons of subsidized federal student loans

  • To be eligible for a subsidized loan, the borrower must demonstrate financial need, and a student’s parents’ income and assets may preclude him or her from getting one. Graduate and professional students are ineligible for this program. As a result, borrowing limitations are smaller, and students may need to supplement their funds with additional loans. Unpaid loan sums do not disappear as a result of bankruptcy.

What is an unsubsidized loan?

It is a sort of federal student loan that begins accumulating interest as soon as the funds are given to your school, which is known as a “direct unsubsidized loan.” While you are in school and during your six-month grace period, you have the option of choosing not to pay this interest; however, any unpaid interest that accumulates during this time will be charged to your outstanding debt.

Pros of unsubsidized student loans

  • When money is paid to your school, a Direct Unsubsidized Loan, which is a sort of federal student loan, interest begins to accrue immediately. While you are in school and during your six-month grace period, you have the option of choosing not to pay this interest
  • But, any unpaid interest that accumulates during this time will be applied to your overall sum.

Cons of unsubsidized student loans

  • Unsubsidized loans begin accruing interest from the moment of disbursement, even if you are still enrolled in college. If the borrower fails to pay the interest as it accrues, the lender will capitalize the debt (which means the lender will add the interest to the main loan total). Loan amounts that have not been paid cannot be dismissed in bankruptcy.

How much can you borrow?

Amounts that can be borrowed vary depending on the cost of attendance, the length of time you have been in school, and any other financial help you have received. Both forms of loans, however, have yearly and aggregate borrowing restrictions that apply to the total amount you can borrow.

  • Students with dependents can borrow a total of $31,000 for undergraduate education, which can be split between unsubsidized and subsidized loans, depending on their circumstances. Direct Subsidized Loans have a maximum loan amount of $23,000, while independent undergraduate students can borrow up to a total of $57,500 in total. Graduate or professional students can borrow a total of $138,500 in Direct Unsubsidized Loans, which includes any undergraduate loans, up to a maximum of $23,000 in Direct Subsidized Loans. Graduate or professional students can borrow a total of $23,000 in Direct Subsidized Loans.

Interest rates on subsidized and unsubsidized loans

Federal student loan interest rates are determined by the federal government, and the rates may fluctuate from year to year depending on the federal student loan program. The following are the interest rates for the academic year 2021-22:

  • 3.73 percent for undergraduate students who take out Direct Unsubsidized or Direct Subsidized Loans
  • 5.28 percent for graduate and professional-degree students who take out Direct Unsubsidized Loans
  • 3.73 percent for international students who take out Direct Unsubsidized or Direct Subsidized Loans

What does the repayment process look like?

Student loan borrowers who take out federal student loans, whether they are in repayment of subsidized or unsubsidized loans, do not have to make payments while in school, however unsubsidized loans will accumulate interest. A six-month “grace period” begins for debtors once they graduate, drop below half-time attendance, or drop out of the program entirely. Unsubsidized loans continue to accrue interest, but subsidized loans are not accumulating interest. After the six-month grace period has expired, the payback term will formally begin.

Prioritize your unsubsidized loans when creating a repayment strategy for your student loans.

Should I take out federal or private student loans?

Prior to looking into how to pay for college, it’s a good idea to take advantage of any grant or scholarship possibilities that may be available to you before beginning to examine financing choices. If you do need to borrow money, it’s nearly always advisable to start with federal loans because they are more forgiving. Several perks that are only available via the federal government are included with these loans, including income-driven repayment programs, extended forbearance and deferral periods, and debt forgiveness opportunities.

While they should normally be used as a last choice, if you have strong credit, you may be able to qualify for cheap interest rates.

How the Biden presidency affects federal student loans

Several steps have been taken by the United States Department of Education to give temporary assistance to federal student loan debtors after the outbreak of the coronavirus pandemic began in March 2020, according to a press release. Among these measures are the suspension of loan payments and the imposition of a 0 percent interest rate on all government-owned loans, among others. Activities related to the collection of delinquent government loans have also been suspended. Following a series of extensions, the forbearance period is now due to end on May 1, 2022, with the next extension possible.

You can, however, continue to make payments on your loan if you so want; doing so will allow you to pay off your debt more quickly because all payments will be applied to the principle.

He has also proposed a number of additional initiatives, such as changing income-driven repayment programs and making it simpler to qualify for public service loan forgiveness.

Frequently asked questions about federal student loans

First and foremost, visit the website of the United States Department of Education to complete the FAFSA (Free Application for Federal Student Aid) each year. A Student Aid Report will be mailed to you once the department has processed your application (which will typically take three to ten days, depending on how you applied) (SAR). In the SAR, you will find information on your estimated family contribution (EFC), which will be sent to the school(s) that you indicated on your FAFSA application.

If a federal student loan is included in your overall financial assistance package, the financial aid officials at your institution can provide you with information on how to accept the loan.

How will I receive my loan?

When your loan is issued, your school will withdraw enough cash to cover the costs of tuition, lodging and board, and any other expenses that may be incurred. The financial aid office at your school will reimburse any money that is left over from your loan profits to you within 14 days if there is any left over. It’s important to remember that student loan funds can only be utilized for genuine educational costs.

What types of loan repayment options are there?

There are a variety of repayment alternatives available for federal student loans. This payment flexibility is one of the most significant benefits that federal student loans may provide to borrowers.

  • Repayment Schedule: Your payments will be fixed over a ten-year term under the Standard Repayment Schedule (or 10 to 30 years on Direct Consolidation Loans). All borrowers are eligible for this program
  • Graduated Repayment Plan: Your payments will begin at a modest level and gradually grow in amount. All borrowers are eligible for this program. In addition, the payment duration is 10 years (10 to 30 years for Direct Consolidation Loans), and the total interest paid during the loan’s lifetime is more than it would be under the normal plan. Borrowers who have more than $30,000 in Direct Loans can have their payments extended for up to 25 years, with the payments being either fixed or graded in nature. Pay As You Earn Repayment Plan (REPAYE Plan): The REPAYE Plan has been revised. Over a period of 20 or 25 years, your monthly contributions will amount to 10 percent of your discretionary income. Your monthly payments are determined by your salary and the size of your household (which must be updated every year). Applicants include student borrowers who have qualified for Direct Loans. Pay As You Earn Repayment Plan (PAYE Plan): This plan allows you to pay back your debt as you earn it. Over a 20-year period, your monthly contributions will be equal to 10% of your discretionary income. Your payment amount, on the other hand, cannot be greater than it would be if you were enrolled in the Standard Repayment Plan. Income and family size are taken into consideration when calculating your monthly payment, and these figures must be updated on an annual basis. Those who become first-time student borrowers on or after October 1, 2007, and who got a disbursement of a Direct Loan on or after October 1, 2011, are eligible for this option. The Income-Based Repayment Plan (IBR Plan) is a type of debt repayment plan that is based on your income. It is anticipated that payments will be 10 or 15 percent of your discretionary income, and that they would not be higher than what you would have paid under the traditional plan. Depending on when you took out the loan, you will have to pay it back over a period of 20 or 25 years. Your income and family size are taken into consideration when calculating your payback, which must be revised on an annual basis. Student borrowers who have qualified for Direct or FFEL Program loans are eligible for this program. Your payment will be the smaller of either 20 percent of your discretionary income or what you would pay on a repayment plan with a fixed payment over the course of 12 years if you choose the income- contingent repayment plan (ICR Plan). The loan has a 25-year payback period. Payments are determined by your salary, family size, and the amount of Direct Loans you have taken out. All Direct Loan borrowers who meet the eligibility requirements are eligible. Income-Sensitive Payback Plan: The amount of your monthly repayment is determined by your annual income, which might fluctuate up and down over the year. The monthly payments are spread out over a maximum of 15 years. Borrowers who have taken out loans under the FFEL Program are eligible.

Can my loan ever be forgiven or discharged?

There are various options available for forgiving or dischargeing a federal student loan.

  • A number of programs, including the Public Service Loan Forgivenessprogram, industry-specific forgiveness programs (for teachers, nurses, physicians, and other professionals), and income-driven repayment plans are available to those who are eligible. There are a multitude of reasons why you can be qualified for a student debt forgiveness. Closed school discharge, Perkins loan cancellation and discharge, total and permanent disability discharge, death discharge, Borrower Defense to Repayment, False Certification Discharge, Identity Theft Discharge, and unpaid refund discharge are some of the discharge options available. For more information, contact your lender. On the website of the United States Department of Education, you may learn more and apply for a federal student debt discharge.
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Can I cancel my loan if I don’t need it?

It is possible to get your federal student debt discharged, but only if you take action right now. You have 120 days from the date on which your school disbursed your loan to cancel all or part of your loan, whichever is greater. Interest and loan costs are not charged if the funds are returned prior to the due date.

Learn more:

  • The most advantageous student loans
  • Learn all you need to know about the student loan repayment procedure
  • The definitive resource on federal student loans

Which to Borrow: Subsidized vs. Unsubsidized Student Loans

finest student loans; the greatest possible student loans What you need to know about the student loan repayment procedure; Federal student loans: a comprehensive resource;

Subsidized Unsubsidized
What you need to qualify Must demonstrate financial need Don’t have to demonstrate financial need
How much you can borrow Lower loan limits compared with unsubsidized loans Higher loan limits compared with subsidized loans
How interest works while you’re enrolled in college Education Department pays interest Interest accrues
Who can borrow Undergraduate students only Undergraduate and graduate or professional degree students

Subsidized vs. unsubsidized student loans

As part of the federal direct loan program, both subsidized and unsubsidized loans are made available to students. You will, however, pay less in interest over time if you fulfill the financial need standards to be eligible for subsidized loans rather than unsubsidized loans if you qualify. Since your subsidized loan for undergraduate studies will have the same interest rate as an unsubsidized loan, interest will not accumulate while you are still in college or during other times of nonpayment, you will save money on interest costs.

  • The following are the most significant distinctions between subsidized and unsubsidized student loans: Students who are enrolled at least half-time in an undergraduate program are eligible for financial assistance.
  • For first-time borrowers who apply on or after July 1, 2013, they can borrow up to 150 percent of the length of their academic program as listed in their academic program catalog.
  • Unsubsidized: There is no term restriction on how long you may borrow money with these loans.
  • Unsubsidized: Any student, regardless of financial need, is eligible to borrow.
  • An undergraduate student who is in his or her first year of dependency can borrow $3,500 in subsidized loans, compared to $5,500 in unsubsidized loans, for example.
  • Non-subsidized loan limitations vary from year to year, although they are often greater than subsidized loan restrictions.
  • The maximum amounts are $57,500 for independent undergraduate students and $138,500 for graduate students who are also deemed to be independent from their parents.
  • A subsidy is provided in the form of a fixed annual percentage rate of 3.73 percent for loans given on or after July 1, 2021, and ending on or before June 30, 2022.

These interest rates will apply to loans granted on or after July 1, 2021, and will remain in effect until June 30, 2022.

How interest accrues on subsidized and unsubsidized loans

For students who are enrolled at least half-time in college, the Education Department pays interest on their loans at no cost to them. Unsubsidized: Interest begins to accrue as soon as the loan is disbursed, even if the student is still enrolled in school, and continues until the loan is paid off. Subsidized: There are no payments needed for the first six months after you graduate from high school. During this period, the Education Department will continue to pay interest on the debt. Unsubsidized: Loan payments are not required for the first six months after you graduate from college, but interest will continue to accrue during that time.

Over time, this will raise the total amount of money you owe, and you will end up paying more in interest.

In the case of an unsubsidized loan, interest continues to accrue throughout the period of deferral and will be added to the principle loan amount.

How to get subsidized and unsubsidized loans

To be considered for a federal loan, you must first complete theFAFSA. You’ll receive a report outlining how much government assistance you’re eligible for. Make sure to take advantage of all of the awards and scholarships that are provided to you in the report, since this is free money. You’ll also want to embrace any work-study opportunities that come your way before taking out any loans. The amount of money you may borrow and the loan kinds you qualify for will be determined by your school each year that you are enrolled: subsidized or unsubsidized, depending on your enrollment status.

In general, it is recommended not to borrow more money than you anticipate earning in your first year out of college.

Taking out federal loans vs. private loans

First and foremost, take out government loans: The interest rates for private student loans are often higher, and if a student borrower does not have a credit history, a co-signer is required. In addition, federal loans, both unsubsidized and subsidized, provide more repayment alternatives and forgiveness possibilities to borrowers than do private loans. Consider private loans only if you still have a payment gap to close in order to cover educational expenses. Before you borrow, compare all of your private loan alternatives, including their interest rates, repayment and forbearance options, and decide which one is best for you.

Federal Subsidized Student Loan Limit – Great Lakes

Beginning on July 1, 2013, new borrowers who take out federal Direct subsidized loans between that date and July 1, 2021 are subject to the 150 percent Direct Subsidized Loan Limit, which restricts the amount of time a student is eligible to borrow subsidized loans to 150 percent of the published program length.

Part of you may have received notification that your subsidy on some or all of your loans has been terminated, while others may have learned about the subsidy limit for the first time and wish to learn more.

Topics Covered in this Article

Beginning on July 1, 2013, new borrowers who take out federal Direct subsidized loans between that date and July 1, 2021 are subject to the 150 percent Direct Subsidized Loan Limit, which restricts the amount of time a student is eligible to borrow subsidized loans to 150 percent of their published program length. Part of you may have received notification that your subsidy on some or all of your loans has been terminated, while others may have learned about the subsidy limit for the first time and want to know more.

For example, each of these students is considered a new borrower for purposes of this subsidy limit.

  1. If you are a first-year college student who will be borrowing a loan for the first time between July 1, 2013 and July 1, 2021, you are eligible. In the case of a third-year student who has not borrowed any Direct loans for the first two years and who takes out their first loan between the dates of July 1, 2013 and July 1, 2021, the following criteria must be met: The return of a student to school between July 1, 2013 and July 1, 2021, who has paid off all of their Direct loans before beginning their new program and who does not need to borrow a new loan for their new program

Which Loans Are Affected?

It is only direct subsidized loans that are subject to the subsidy limit. Students can choose between subsidized and unsubsidized Stafford loans when applying for a direct Stafford loan. The main distinction between the two sorts of loans is who is responsible for paying the interest in certain circumstances. Direct loans accrue (i.e., accumulate) interest over time. When you borrow money, you are charged interest, which is calculated as a percentage of the total amount of money you have borrowed.

UnsubsidizedLoansSubsidizedLoans

  • It is only direct subsidized loans that are subject to the subsidy cap. Students can choose between subsidized and unsubsidized Stafford loans when applying for direct Stafford loans as an undergraduate student. The main distinction between the two sorts of loans is who is responsible for paying the interest in specific circumstances, which is different for each. Interest accrues (i.e., accumulates) on direct loan amounts. When you borrow money, you are charged interest, which is calculated as a percentage of the outstanding balance of the loan. Interest on government-subsidized loans is sometimes paid for by the government. UnsubsidizedLoansSubsidizedLoans

When Is the Limit Reached?

After taking out your first subsidized loan, if you qualify as a new borrower under the guidelines outlined above, you will be able to take out subsidized loans for a period equal to 150 percent of the duration of your published program. Consequently, depending on how long you are participating in the program, the real time limit for borrowing subsidized loans may vary. If you are unsure of how long your program will last, you should speak with your school to find out.

Some examples of common program lengthsand their subsidy limits:

  • If you’re taking four years to earn a bachelor’s degree, you can take out subsidized loans for up to six years
  • If you’re taking two years to earn an associate’s degree, you can take out subsidized loans for three years
  • And if you’re taking a one-year certificate degree, you can take out subsidized loans for 1.5 years.

Once you hit the subsidy maximum for your program, you will no longer be able to get a subsidy on your existing loans if you do any of the following:

  • Your undergraduate program, or another program of equal or shorter duration, does not allow you to graduate
  • You continue your participation in the same undergraduate program, or another program of equal or shorter length

Keep in mind that if you decide to alter your major or transfer to a different institution, your time restriction may vary. If this occurs, the subsidized loans you obtained during your old program’s maximum eligibility term are normally deducted from your new maximum eligibility period.

Your subsidized loan usage is calculated by your enrollment status.

Full-time StudentHalf-time Student

  • A full-time student who takes out a subsidized loan for the duration of an academic year has used up one year of eligibility. A half-time student who takes out a subsidized loan for the whole academic year has already used up half of his or her eligibility

These restrictions apply only to the periods during which you receive subsidized student loans. If you are enrolled full-time for four years but only take out subsidized loans for three years, you have only used three years of your eligibility for federal student loans.

In what situations do I lose the subsidy on my existing Direct subsidized loans?

  • These restrictions apply only to the periods during which you get subsidized loans. If you are enrolled full-time for four years but only take out subsidized loans for three years, you have only used three years of your eligibility for federal student aid.

Annais is now enrolled in a four-year bachelor’s degree program. She attends school full-time and takes out subsidized loans each year for the next six years, which she pays back over time. By the time she reaches her seventh year of college, she will have lost her eligibility for new subsidized loans and will be liable for any interest that accrues on her current subsidized loans after the date she lost her eligibility for the subsidy. Joe is enrolled full-time at a university to pursue a four-year degree, and he takes out subsidized loans on a yearly basis.

His eligibility for additional federally subsidized loans is terminated when he enrolls in his new program.

Due to the fact that his subsidy maximum was reduced from six years in his old program to three years in his current two-year program, this has occurred.

He attends school full-time for two years, during which time he receives subsidized loans from the government.

When he returns to school, he expects to finish his degree in two years at the most. Despite the fact that it took him nine calendar years to finish his education, he did not exceed the subsidy limit because he was only enrolled in school for a total of four years during that time.

What Happens When My Subsidy Is Lost?

If you hit the subsidy limit, you will get a notice from your servicer informing you that you have forfeited your subsidy and will no longer be eligible for it. Nevertheless, what does it mean to lose the subsidy advantage?

  • You are no longer eligible to borrow money through a discounted loan program for your current program. But it has no effect on whether or not you qualify for unsubsidized loans
  • Nonetheless, the interest on your current subsidized loans is no longer subsidized by the federal government while you’re in school, on deferral, or participating in certain income-driven repayment programs. You are therefore liable for all interest that accrues on your subsidized loans from the date of your continuing or new enrollment onward. While you are enrolled in school, you are not compelled to make payments on the interest that has accrued. Until you pay the interest that is collecting on your loans, it will capitalize, or be added to your principal balance, at the conclusion of your grace period or deferral term, unless you pay it. Over the course of your loan, capitalization will cost you more money in interest. In the long term, making payments while you are in school can save you money on interest and fees.

If you reach the subsidy limit and lose the interest subsidy, you become responsible for interest on your subsidized loans in your current program in certain situations.

  • Prior to losing the interest subsidy and after losing the interest subsidy, you must be enrolled in school at least half-time
  • During deferral periods, you must be enrolled in school at least half-time before losing the interest subsidy and after losing the interest subsidy. For some periods of repayment under income-based repayment or pay as you earn repayment arrangements, you may be required to pay a penalty. Prior to the loss of the interest subsidy Following the loss of the interest subsidy DuringforbearanceperiodsBefore losing the interest subsidyAfter losing the interest subsidy
  • During all other periods of repaymentBefore losing the interest subsidyAfter losing the interest subsidy

It should be noted that if you enroll in a longer program after having previously lost your subsidy, you may be eligible for extra subsidized loans up to the amount of your new, longer subsidy limit. In the meanwhile, you are still liable for the interest that is collecting on your earlier loans that were no longer eligible for the subsidy. In addition, any loan that has lost subsidy but has been paid in full is ineligible for retroactive subsidy restoration, even if the loan was previously qualified.

Resources

Do you have any queries concerning your particular situation? You may look into your enrollment dates and borrowing history on StudentAid.gov, or you can speak with your school to find out how long your published program is expected to last.

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