Subsidized vs Unsubsidized Loans

To keep it simple, both Direct Subsidized and Direct Unsubsidized loans are federal loans that are given to those students eligible for Financial Aid to help cover all or at least some of the costs associated with pursuing higher education at an accredited College, University or Trade School.  Both loans do not require any sort of payments while you are actively attending school at least half-time.

Subsidized vs. Unsubsidized Loans

Direct Subsidized Loans are backed by the government for educational related expenses whose interest is paid by the U.S. Department of Education (DOE) while you are enrolled at least half-time in school.  Subsidized Loans are also paid by the government during your first 6 months after leaving and/or graduating (Know as a “grace period”) as well as during a deferment period, should you need to postpone your loans.  The amount of Subsidized funds you are eligible for are determined by your school based on your financial need (EFC) and current interest rates are 3.4%.
Direct Unsubsidized loans are not based on your financial need and thus you are required to pay the interest on these loans while you are in school.  However, you have the option to defer these payments while you are in school, during a “grace period”, forbearance and/or a deferment period, but the interest will accumulate and be added on to your final Student Loan payment. Current interest rates for Unsubsidized loans are set at 6.8%

As you can see, knowing the difference between Subsidized and Unsubsidized Loans is important to your wallet. While in school or on deferment Subsidized loans interest rates are paid by the DOE and Unsubsidized loans interest rates are paid by the student.  However, it is equally important to understand the short vs. long-term affects. To get a full understanding, lets look at an example of two Undergraduate students who are similar in all aspects other than their EFC  while attending school for 4 years.

Student 1’s EFC showed a financial need over the 4 years and thus the student was able to get Subsidized funds.

Subsidized Financial Aid financial impact

Student 2’s EFC did not show a financial need over the 4 years and thus the student was only able to get Unsubsidized funds.

Unsubsidized Financial Aid financial impact

*Please note that this is only an example to show the long term affects for Subsidized vs. Unsubsidized over the life of your loans while in repayment. Your actual repayment amounts will very.

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