What is the difference between a subsidized and an unsubsidized loan?
For both loans, the principal (the original amount a student borrows) is deferred until six months after the student graduates or stops attending school at least half-time. As its name implies, a SUBSIDIZED loan is one where the government pays the interest on the loan while the student is in school, grace period, or deferment. An UNSUBSIDIZED loan is one where the government does not pay the interest while the student is in school; that is, the student is responsible for paying the interest.
A subsidized loan is awarded on the basis of financial need. You won’t be charged any interest before you begin repayment or during authorized periods of deferment). The federal government “subsidizes” the interest during these periods. An unsubsidized loan is not awarded on the basis of need. You’ll be charged interest from the time the loan is disbursed until it is paid in full. If you allow the interest to accrue (accumulate) while you are in school or during other periods of nonpayment, it will be capitalized that is, the interest will be added to the principal amount of your loan, and additional interest will be based on that higher amount. If your interest is capitalized, it will increase the amount you have to repay. You can choose to pay the interest as it accumulates; if so, you’ll repay less in the long run.
Related Questions
- What if I have exhausted my annual Federal Direct Subsidized/Unsubsidized Loan eligibility and I still have not reached the cost of attendance? How do I secure additional loans?
- What is the main difference between a Subsidized and Unsubsidized Direct Loan?
- What is the difference between a subsidized loan and unsubsidized loan?
