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.) • Can I get a loan? You must first file the Free Application For Federal Student Aid (FAFSA) to see what type of aid you qualify for; you will be offered need based (grants, work-study & subsidized loans) funds first, then last resort type of funds (unsubsidized or PLUS loan
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, during a six-month grace period, or during authorized periods of deferment. An unsubsidized student loan is not based on the student’s financial need, but students must also meet specific eligibility requirements. Interest is charged throughout the life of the loan. The borrower may choose to pay the interest charged on the loan or allow the interest to be capitalized (added to the loan principal). Students are considered for subsidized loans first.
• There are two types of Federal Direct Student Loans: The Federal Direct Subsidized Loan • For a subsidized loan, the U.S. Department of Education pays the interest on the loan amount while you are in school at least half time. • The amount of subsidized loan offered depends on your financial need (determined by your FAFSA results), your grade level and other aid you receive. The Federal Direct Unsubsidized Loan • For an unsubsidized loan, you are responsible for the interest from the time the loan is disbursed until it’s paid in full. You can pay the interest as you go along or allow the interest to accrue. • The amount of Unsubsidized Loan depends on your grade level and when added to your other aid cannot exceed your Cost of Attendance (COA).
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?
