Differences Between Subsidized and Unsubsidized Student Loans

Filed in Education by on May 1, 2024

The differences between subsidized and unsubsidized student loans are clear but you still may not be able to see it except you are being guided and that is why we are here. As you read on, we will be showing the notable difference between subsidized and unsubsidized student loans.

Differences Between Subsidized and Unsubsidized Student Loans

Differences Between Subsidized and Unsubsidized Student Loans

The Major distinction between subsidized and unsubsidized student loans depends mainly on who pays the interest on the loans during the in-school and grace periods.

Usually, when choosing subsidized loans you can save a lot in interest charges. But they can be harder to qualify for than unsubsidized loans and there are stricter limits on how much you can borrow and when.

Let’s take a look at the individual terms involved in our discussion.

Student Loan Programs

There are two main types of subsidized loans, the subsidized Federal Stafford Loan (also known as a Direct Subsidized Loan) and the Federal Perkins Loan. The subsidized Federal Stafford Loan is available to undergraduate students only.

The Federal Perkins Loan may be available to both undergraduate and graduate students, depending on the college. The grace period is 6 months on the Federal Stafford Loan and 9 months on the Federal Perkins Loan.

All other loans are unsubsidized. This includes the unsubsidized Federal Stafford Loan (also known as a Direct Unsubsidized Loan), the Federal PLUS Loan (also known as a Direct PLUS Loan), private student loans, and private parent loans.

Unsubsidized Student Loans

Unsubsidized Student Loans are loans provided for students by the federal government to ease the financial requirement for pursuing education.

These loans are not based on financial needs. Interest on unsubsidized student loans starts to accrue as soon as the loan is disbursed to the school.

These are fixed-interest loans and a student is not required to start making repayments while he or she is in school. Students are not required to make interest or principal payments until 6 months after graduation.

These loans can be used to pay for the total expenses of your education: tuition, housing, reading materials, and other expenses related to studies.

There are several banks, credit unions, and loan companies from where students can obtain an unsubsidized student loan.

Subsidized Student Loans

The federal government – specifically the Department of Education – disburses and administers subsidized student loans.

Congress sets the interest rates, and those are determined in federal legislation. Currently, the interest rates are set to the ten-year Treasury note, a low-risk note issued by the United States Treasury and backed by the government.

In subsidized Student Loans, the government covers the interest that accrues on these loans while a student is in school, enrolled at least on a half-time basis, and for several months after a student graduates or drops below half-time status: this is what makes them subsidized loans.

Distinctions Between Subsidized and Unsubsidized Student Loans

1. To qualify for subsidized loans, you’ll need to demonstrate financial need. Unsubsidized student loans have no financial need requirement.

2. Subsidized loans are also stricter than unsubsidized student loans in regard to annual and aggregate borrowing limits and maximum eligibility periods.

3. In subsidized loans, the federal government pays the interest on the loan.

4. Subsidized loans are usually awarded based on demonstrated financial need.

5. The annual and aggregate loan limits for the subsidized Federal Stafford Loan are lower than the overall loan limits for the Federal Stafford Loan.

6. Loan seekers prefer subsidized loans over unsubsidized loans, as the subsidized loans cost less.

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CSN Team

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