Unsubsidized vs Subsidized Student Loans

The rising cost of education requires more and more people to understand the difference between unsubsidized and subsidized student loans. There are a few important key points to remember about the loan types. Basically, subsidized loans are harder to qualify for than unsubsidized. Also, subsidized loans tend to have better loan terms.

Interest Payments

The biggest difference between subsidized and unsubsidized student loans is in the way the interest is handled while you are in school. With either loan, the interest starts accruing immediately when you borrow the money. With a subsidized loan, you are not responsible for the interest payments while you are in school. The interest payments are take care of for you and once you graduate, you are left with only the principal balance, or the amount you borrowed. 

With an unsubsidized loan, you are responsible for the interest payments while you are in school. This loan option has two payment methods. You can make the interest payments while you are in school. This payment is usually quite small as you are only paying the interest on the loan instead of repaying any of the principal. If you do not wish to make payments on the interest, you can defer the interest until after graduation. The interest accumulates while you are in school, and is added to the total of the loan. Therefore, when you graduate, you will be looking at a much larger balance than if you had a subsidized loan to pay off. You will need to pay the loan balance, plus interest costs.

Interest Rate

Another key difference between subsidized and unsubsidized student loans is in the interest rate. When you have a subsidized loan, you typically have a low interest rate. An unsubsidized loan will have higher rates increasing both your payments and loan balance. While the difference in monthly payments may seem small, sometimes $50-$80 dollars, over the course of time the loan balance will increase significantly. 

Approval Process

Not everyone qualifies for a subsidized loan. Subsidized loans are based on financial need. You will not qualify for this loan is your earnings exceed the established guidelines or if you are considered a dependent of someone that does not fit into the earnings guideline

To get the money that you need, you will have to fill out a FAFSA to determine your financial situation. The application can be found online and at financial aid offices at your college or university. You will be required to document your income, bank accounts and legal residence. Some programs may require additional documentation.


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