2 answers

What is the difference between a subsidized and an un-subsidized loan?

Asked London, England, United Kingdom

I'm trying to be smart about paying for college. I don't want to be in debt when I'm thirty. #scholarships #student-loans #money-management #debt #personal-finance

2 answers

Kathy’s Answer

Updated Omaha, Nebraska

Great question, and yes, why be in debt if you do not have to?!

I worked for several years in the student loan industry. The federal government offers subsidized loans based on the student’s financial need when applying for aid through the FAFSA. The key component of a subsidized student loan (and the biggest benefit) is that the U.S. Department of Education pays for any interest accrued while you are in school. To receive this benefit, you must be enrolled at least halftime. You’ll also get a six-month grace period after graduation, meaning that any interest that accrues during your college career and six months afterward, is completely paid for. When the grace period ends, though, you are required to make monthly payments of principal and interest. These loans are available to undergraduates only.

Unsubsidized student loans, on the other hand, begin accruing interest from the date of your first loan disbursement, though you’re not required to pay that interest until you finish school. When you graduate, the amount of money that accrued during your education is simply added to the principal loan amount and you begin paying off that new amount. One benefit to taking out an unsubsidized loan is that you are not required to demonstrate financial need so the amount you can take out is much higher than a subsidized student loan. Additionally, unsubsidized federal student loans are available for both undergraduate and graduate students.

Either way, these are loans for which you need to pay back! So think about how much you really need to borrow, which starts with a good plan for what you want to do - follow your passion! Try to get a subsidized loan first, and then get any additional funds you may need using the unsubsidized loan option. Keep thinking about paying back to keep the borrowing in check.

Best of luck!

Johannes’s Answer

Updated Tampa, Florida

Put simply, a subsidized loan is effectively "sponsored" until you finish your degree, while an unsubsidized loan is not. How does that actually impact you? If you take out a subsidized loan, the bank will NOT start charging you interest on that loan until after you have finished your degree (or, in many cases, about 6 months after you graduate). Banks WILL charge you interest on unsubsidized loans while you are still in school, which can add up to hundreds of dollars.


If the interest rates on your loans are similar, always take the subsidized loan before you take the unsubsidized one.

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