What is the difference between a subsidized loan and an unsubsidized loan?
The subsidized loan is need based (based on the information you provided on the FAFSA) and the government pays the interest while you are in school and during authorized periods of deferment. The unsubsidized loan is not awarded based on need and you will be charged interest from the time the loan is disbursed until it is paid in full. You have two options for repayment. You may choose to pay the interest as it accumulates. This is the method we suggest, as you will repay less in the long run or you may allow the interest to accumulate and it will be capitalized. (The interest will be added to your loan and additional interest will be based upon the higher amount. This will increase the amount you have to repay.
A subsidized loan does not start accruing interest until you graduate or drop below 6 hours during the semester. An unsubsidized loan starts accruing interest immediately, but you will only have to make payment on the interest every 3 months. After you graduate or drop below 6 credit hours you will begin full repayment on the principal and interest.
When a loan is subsidized by the federal government, no interest is charged as long as the student maintains half-time enrollment, is in the grace period, or in deferment. An unsubsidized loan means that interest is charged while the student is enrolled (regardless of the number of hours), in the grace period, and in deferment.
A subsidized student loan is awarded on the basis of the student’s financial need and other specific eligibility requirements. The federal government does not charge interest on these loans while borrowers are enrolled at least half time (6 credit hours a semester), during a six-month grace period, which begins after the student drops below six hours or during authorized periods of deferment.
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?
