The Difference Between Subsidized and Unsubsidized Loans

You might already know whether you’ll need to take out loans to pay for college, but the details might get a little jumbled, and it can be challenging to sort through the various options.

Knowing your financial aid options will make your college experience less stressful. 

One thing people tend to get especially confused about is the difference between subsidized and unsubsidized loans. Below is a breakdown of how they work.

Wondering when to even begin applying for student loans?  Have no fear:  check out our free College Selection Timeline to keep yourself on the path to a successful college career.

Loan Types

To get right to the point, here’s the key difference between the two:

• The government pays the interest on a subsidized loan while a student is enrolled in school at least half-time and during the “grace period” (six months after graduation).
• With an unsubsidized loan, the borrower (which can be a student but is sometimes parents or grandparents) is responsible for all the interest that accrues on the loan from the time the loan is issued.

So you’ll save money with a subsidized loan because the government will pay the interest while you're in school. Here’s a look at the other ways these two types of loans are different:

Subsidized loans

• You have to qualify for this kind of loan based on financial need. Your eligibility is based on your FAFSA – the federal student aid application.
• Subsidized loans are available only for undergraduate students, so you can't get them if you're a grad student.

Unsubsidized loans

• These aren’t based on financial need, although to get this type of loan, you do still have to fill out the FAFSA.
• They’re available to both undergrads and grad students.
• You can opt out of paying the interest on an unsubsidized loan while you’re in school. If you do this, the interest will be added to the principal (base amount) of the loan, making the overall cost higher.

Both loans have borrowing limits, which are based on whether your parents can claim you as a dependent. Take a look at the borrowing limits for Subsidized and Unsubsidized Stafford Loans on our student loan page.

Student Loan Tips

Getting the different types of loans straight is a great first step. Here’s some other advice to keep in mind as you go through the student loan process:

• Don't borrow more than you need for tuition and expenses. It might seem like a good idea to get some extra funds to cover “study breaks,” but it can add up quickly. The last thing you want is a big pile of debt staring down at you just as you get started in your first job following graduation.
• Keep track of how much you've borrowed. That sounds simple, but when you have several loans, it's easy to get confused. One helpful website is the National Student Loan Data System, which includes most federal loans. Note that it doesn't include private loans or federal nursing loans, so you'll have to jot those down separately.
• Use repayment calculators like this one to estimate your monthly payments and finance charges.
• Use the Financial Aid office at your college for guidance. Whatever your needs, financial aid counselors should be available to clarify the loan process and help you decide what options work best for you.
• Keep a file of all your loan paperwork, including any updates or statements.

Student loans and financial aid can seem confusing, but they don’t have to be. Take the time to read up on your loan options, and come talk to us whenever you have questions – we'd love to help!

Think it’s too early to start thinking about loans?  Think again!  Figure out if you’re on the right track to choosing the college of your dreams by downloading our Free College Selection Timeline.