What is the Difference Between Subsidized and Unsubsidized Student Loans?

Which is the better Loan Option for Students – Subsidized or Unsubsidized? What is the interest rate difference and do we need to repay the loan while in school?

Asked on July 16, 2019 in Loans.
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1 Answer(s)

US Government’s federal loan program has two types of loans – Subsidized and Unsubsidized.

Direct Subsidized Loans

Subsidized loans are distributed to qualified borrowers who satisfy the financial need requirements.  The interest costs of subsidized loans are significantly lower as the Education Department pays your interest cost while you are in school.

So your interest cost starts only after you complete graduation. The government also pays the interest of your loan during the grace period (up to 6 months after graduation) and any deferent period.

Direct Unsubsidized Loans

The interest of unsubsidized federal loans starts accruing from the date when you get the loan. The interest amount is accumulated while you are in school and you will be responsible to pay all the interest costs when you complete your graduation.

Subsidized Vs Unsubsidized Federal Loans

Who Can Borrow Subsidized & Unsubsidized Loans  

Subsidized Loans – Undergraduate Students Who Demonstrate financial needs in FAFSA submission.

Unsubsidized Loan – Any Undergraduate, Graduate or Professional Degree Students

 

Who will pay the Interest on Subsidized & Unsubsidized Loans

Subsidized Loan

Education Department will pay the interest amount:

  1. While you are in School
  2. During the Grace Period (6 months after graduation)
  3. During the Deferment Period

Unsubsidized Loan

Interest will starts accruing from the first day when you get the loan. Although you don’t need to repay the loan while you are in school but interest is accumulated and added to the outstanding loan amount.

After you complete your graduation and 6 months of the grace period, your loan repayment will start and you have to pay all the interest and outstanding loan.

 

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Answered on July 17, 2019.
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