Subsidized Loan vs. Unsubsidized Loan
Subsidized LoansSubsidized loans are provided by the Department of Education to students that are in financial need, based on their criteria.
- The government will pay the interest on your loan while;
- You are attending school for at least half the year,
- For the first six months after you finish school (a grace period for you to get working), and
- During deferment periods where you meet certain conditions to delay repayment.
- Your school will determine how much you can borrow, essentially they will deem what your financial need is.
- Eligibility is limited to 150% of the time it would normally take to complete your program, so if you are taking a 4-year degree you must complete it within 6 years.
Unsubsidized LoansSubsidized loans are provided by the Department of Education to students seeking them and there is no requirement for the students to demonstrate financial need. Key features include:
- The student is typically responsible for paying the interest for the life of the loan, even while in school.
- If a student elects not to pay interest, while in school or during what would be the grace period, the interest will be added to the total of the loan. This can result in thousands of extra dollars that need to be paid off.
- Your school will determine the amount you can borrow based on your costs and other financial aid.
Relevant to Both Types of LoansThe difference between these loans really relates to who pays the interest while in school and shortly after. Aside from that the terms of these loans are comparable and provided by the Department of Education.
- Limits on the total value of the loans exist and are regularly updated by the Department of Education. There are major differences between the limits available for dependent students (i.e. living at home) and independent students.
- Prescribed interest rates are applied to all loans and are based on the disbursement date, so a 2014 payment received will have a different rate than a 2015 payment received.
- Loan fees are applied to each disbursement (close to 1%) and are deducted from the cash you receive.
By Jeffrey Glen