What is the difference between subsidized and unsubsidized loans?
• A: Subsidized: The federal government pays the interest while you’re in school, during the six-month grace period or during periods of deferment. Unsubsidized: You are responsible for the interest while you’re in-school, during grace, repayment, and periods of deferments. During your in-school or grace periods, interest payments can be made quarterly, or you may have them deferred. If you choose to defer payments and depending on when your loan was first disbursed, the interest will accrue and will be capitalized (added to your loan balance) at the start of repayment. It is in the student’s best interest to select a lender like AHELA that only capitalizes upon entering repayment.
Eligibility for the subsidized Stafford Loan is based on need. The government pays the interest on these loans while students are in school at least half time and during the six-month grace period before repayment begins. Eligibility for the unsubsidized Stafford Loan is not based on need. The federal government does not pay the interest during school attendance or during the six-month grace period. Students may pay the interest while they are completing their program or allow it to accumulate and be added to the outstanding principle, thereby increasing the amount to be repaid.
Subsidized and unsubsidized refers to the way that your interest is assessed on your Stafford Loan. Subsidized Stafford Loan -the federal government will pay your interest while you are in school (enrolled at least half-time), during your six-month grace period, and during authorized periods of deferment. Unsubsidized Stafford Loan – you are responsible for the accrued interest during in-school and grace periods. You have the option to pay the unsubsidized interest or defer these interest payments until repayment. If you defer the interest it will be capitalized or added to the principal amount of your loan.
The federal government pays the interest charges on subsidized loans during periods of at least half-time enrollment, as well as during the six months after you cease to be enrolled at least half-time (graduation, withdrawal). Borrow as much as you can from these loan programs before borrowing from unsubsidized loans to save on interest charges and overall costs. With Unsubsidized loans, the interest accrues under the student’s name the date the funds are disbursed. The interest becomes due and payable as soon as your lender makes the first disbursement of the loan. The Federal Unsubsidized Stafford Loan program offers options to either pay the interest during in-school periods, or let it accumulate (accrue) and be added to your loan principal (capitalize) when you begin repayment upon leaving school.
