Differences between Subsidized and Unsubsidized Student Loans

The government offers both subsidized and unsubsidized student loans to help students directly pay the cost of college tuition. Government student loan programs may be used for either undergraduate or graduate tuition, and they are given to students who are paying for their own school as well as those who have some assistance. The main factor in any student loan from a government resource is need. Depending on your need level, you will get a different type of loan.

Need Determination

The neediest students are those who are not receiving assistance from family or friends. These students will have to shoulder the cost of tuition themselves, and are offered the least expensive student loans available. Even if you are receiving some support from your family, however, you may still qualify for discounts on your loans if your family cannot cover the full cost of tuition. The government lenders will determine how much assistance you are receiving, how much you still require, and then calculate your need in comparison with other students. The neediest students receive subsidized loans, and less needy students receive unsubsidized loans.

Interest Rate

The neediest students will receive subsidized loans. These loans have no interest while the student attends school. Once the student graduates, he or she will begin paying interest on the loan. In comparison, a student receiving unsubsidized loans will have to pay interest starting the very first semester. While the interest may be very low, the payments will be due each month the student attends school. Most students on this option will have to work while going to school in order to make the interest payments. Many schools offer work-study options to make this possible.

Principal Deferral

Neither subsidized nor unsubsidized loans will require principal payments during the time a student attends school. The principal is entirely deferred until six months after graduation. Students have this small grace period to find employment and start earning a salary. There are a number of different payment options at that point. Graduated repayment options allow a borrower to pay more each subsequent year after graduation. As your income goes up, so do your loan payments. Income contingent options also depend on how much you are making each year to figure out your repayment, but there is a more direct correlation with this choice. Federal student lenders are very good at offering deferment options for students who are not employed at the end of the grace period. However, interest will still be charged.

Loan Limits

Loan limits on subsidized loans are much lower per semester. Unsubsidized loans have higher limits. The result is students typically end up with a mix of both. It is important to understand student loans are distributed on a semester basis through government programs, they are not given as a lump sum upon entering school. You will have to apply each semester for the loan amount you need, and limits may change during the time you attend school.


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