Subsidized vs. Unsubsidized Loans

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Subsidized vs. Unsubsidized Loans

Personal Finance Author: Admin


When looking at paying for education there are a lot of different avenues that students obtain funds from: grants, scholarships, and loans make up the most significant sources. When looking at loans there is a major distinction between taking subsidized and unsubsidized loans as the financial impact of each is very different.

Subsidized Loans are available to students and are based on financial need. For these loans, the government will effectively foot the interest bill for the length of your education, 6 months after you finish school, and even longer if you qualify for deferral.

This means that during the course of your education your debt won’t grow and you won’t have financial obligations related to the loan. When you finish school you begin paying the loan back as if you’d just taken it then.

Unsubsidized Loans are also available to students but do not include the interest relief component of subsidized loans. Students are required to either pay the interest on the loan while they’re in school or add the interest to the balance of the loan while they are in school. If the interest is capitalized the student can have a far larger loan balance at the end of their degree than they had when they first started.

Taking subsidized loans, if available, is certainly the avenue to take, after that completing your funding needs via unsubsidized loans.