Subsidized Student Loans

Unsubsidized vs. Subsidized Student Loans

Students with moderate financial needs are eligible for Subsidized Student Loans. If you have an unsubsidized loan, interest will increase even if you put it on hold.
We’ll review how each of these loans functions now.

The U.S. Department of Education manages a government direct loan program to assist students in covering the costs of higher education. Within the framework of the program, students who choose to borrow money may be eligible for either subsidized or unsubsidized federal student loans.


Students who have financial needs can apply for subsidized student loans. The government will pay the interest on these loans while you are a student.

Unsubsidized loans


Unsubsidized loans commonly referred to as direct unsubsidized loans, are not determined by financial necessity like subsidized loans are. You, as the borrower, are responsible for all repayments, even if you’re still in school.

Procedure for unsubsidized loans


These loans function similarly to loans from banks or other private lenders. However, because they are provided by the government, they frequently have cheaper interest rates and costs.
These loans do, however, have maximum borrowing amounts, so extra loans are frequently required. For instance, a first-year college student’s $5,500 loan cap is typically insufficient to cover the cost of an entire academic year. Many students decide to take out private student loans to make up for any remaining tuition shortfalls after considering scholarships, grants, and federal student loans.

Subsidized Student loans


While you are still enrolled in school, interest is not charged on subsidized loans, commonly known as federal direct subsidized loans. You need to be able to prove your financial need in order to be eligible for discounted loans. Only graduate students are eligible for subsidized loans.

How subsidized student loans work?


From the day the loan money is paid to you or your school, interest accrues on both federal and private student loans. This means that unless you are making monthly payments, you will continue to accrue interest even while your loan instalments are deferred. The interest is “capitalized,” or added to the principal loan sum when you graduate.


In the case of subsidized student loans, the government steps in and pays the loan’s interest only while you’re still enrolled in classes. Your loan balance ought to be quite close to your starting loan balance when you graduate.


For instance, a $4,000 government loan has an annual interest cost of around $260. The federal government pays back the sum on your behalf when you have a subsidized student loan. A $4,000 subsidized student loan might therefore save you more than $1,000 over the course of four years of education compared to other types of loans.


Note: The federal government provides all student loan subsidies. There are no privately backed, subsidized student loans.

  • Significant variations between subsidized and unsubsidized loans
  • While you’re still in school, interest accumulates on unsubsidized loans.
  • Until the end of your six-month grace period following graduation, the government will pay the interest on your subsidized loans.
  • It is possible to apply for unsubsidized loans as an undergraduate or graduate student.
  • Undergraduate students are the only ones eligible for subsidized loans.
  • You must prove a need for financial assistance to be eligible for discounted loans.


Eligibility: For whom are federal student loans available?
Federal student loans might seem like a good deal, and if you can get one, they are. But not everybody qualifies.


Eligibility: Subsidized student loans


  • For federal student loans with subsidies, applicants must meet the following criteria:
  • You’re a citizen of the US.
  • You show that you are in need of money.
  • You’ve submitted an application or registered as an undergraduate. Graduate students are not qualified for loans with subsidies.
  • You attend a school that takes part in the federal student loan program either currently or intends to do so at least half-time.

Eligibility: Unsubsidized student loans

  • For federal student loans that are not subsidized, you must meet the following criteria:
  • You are an American citizen.
  • You’ve submitted an application or signed up as an undergraduate, graduate, or professional student.
  • You attend a school that takes part in the federal student loan program either currently or intends to do so at least half-time.

How much can you borrow?

Federal student loans, both subsidized and unsubsidized, are subject to aggregate and yearly loan limits. Due to these restrictions, you might need to obtain extra loans from a private lender in order to cover the entire cost of attendance.

The maximum amount you are permitted to borrow annually is determined by your grade level and whether you are an independent or dependent student. Federal student loans are often available in higher amounts to independent students than to dependent students.

Depending on your degree (undergraduate, graduate, or professional), your status as an independent or dependent student, and the total number of loans you can have outstanding at any given time, there are different aggregate loan restrictions that apply to you.

When must you begin making payments on your federal student loans?

Once you’ve graduated or stopped attending school full-time, you’ll need to start working with the government to pay back your student loans. After you graduate from college and receive your federal student loan, you usually have six months of grace before you have to begin making monthly payments.

It’s important to remember that interest can amass within your grace period. If you can begin making payments before the grace period has passed, you’ll save money over the course of the loan.

Get in touch with your student loan servicer to find out more about your repayment options and timetable.

How to apply for a federal student loan?

Both subsidized and unsubsidized federal student loans are applied for in the same manner: Complete the Free Application for Federal Student Aid (FAFSA) right away (FAFSA).

Following receipt of your application, the government sends your data to the institutions or universities you indicated on your FAFSA.

If you are accepted, the institutions will give you a letter of acceptance along with a financial aid package. Federal and state grants, as well as information about your eligibility for subsidized and unsubsidized student loans from the federal government, will typically be included in the financial assistance package.

Let’s take a moment to explain two concepts that frequently cause misunderstandings:

Despite the fact that the FAFSA is a federal form, the financial aid departments of the universities you’ve applied to will handle your financial assistance package. No reward letter will be sent to you by the federal government.

Depending on the institution you attend, the amount of federal financial help you receive may change.

It’s normally better to take any subsidized student loans dollars offered to you after accounting for the “free money” we described above, then move on to federal unsubsidized loans, followed by private loans, if necessary.

What if you’re unable to pay?

Undoubtedly, the majority of college students wish to find meaningful employment quickly after they graduate. However, it’s always a good idea to be aware of your options in the unfortunate event that you find yourself unable to repay your loan on time.

Subsidized student loans can provide some comfort in this situation as well. You have the choice to use either a deferment or a forbearance if you are unable to make a payment for any reason.

Deferment enables you to reduce or delay payments for subsidized student loans for up to three years, frequently without an increase in interest. Deferment may also be possible with unsubsidized loans, but in that case, interest would typically be levied.

You can delay payments for up to a year through forbearance, but interest will still mount during that time.

Other ways to pay for school

You might need to look into private student loans if you can’t fully finance your school through grants, scholarships, and federal loans. Take a look at our selections for the top private student loan offers for the upcoming academic year.

About James G. Barr

I am an international student. I am a doctoral student and teaching assistant at a University in the United States. Aspiring students looking to make their educational dreams come true, we offer generous scholarships to help you reach your goals.

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