The Difference Between Subsidized and Unsubsidized Student Loans
When it comes to financing higher education, student loans are a common option for millions of students across the US. But with so many different types of student loans available, it can be overwhelming to try and figure out which one is the right fit for your needs and financial situation. One of the most fundamental distinctions within the world of student loans is the difference between subsidized and unsubsidized loans. In this article, we’ll break down the key differences between these two types of loans and help you determine which may be the best option for you.
What is a Subsidized Student Loan?
Subsidized loans are a type of federal student loan that are available to undergraduate students who demonstrate financial need. When you take out a subsidized loan, the US Department of Education pays the interest on the loan while you are enrolled in school at least half-time, as well as during the six-month grace period after you graduate or drop below half-time enrollment. As a result, subsidized loans can be an attractive option for students who may not have the financial means to make interest payments while they are still in school.
To qualify for a subsidized loan, you must fill out the Free Application for Federal Student Aid (FAFSA) and demonstrate financial need based on your family’s income and other factors. The amount of money you can borrow with a subsidized loan varies based on your year in school and other factors, but the maximum amount for undergraduate students is currently $5,500 per year.
The Pros of Subsidized Student Loans
- The government pays the interest on the loan while you are enrolled in school at least half-time.
- You don’t have to start making payments on the loan until after you graduate or drop below half-time enrollment.
- Subsidized loans are available to students with financial need, so they can be a helpful option for students who may not have the resources to make interest payments while in school.
The Cons of Subsidized Student Loans
- You must demonstrate financial need in order to qualify for a subsidized loan.
- The amount of money you can borrow with a subsidized loan is limited, which means you may need to supplement your financing with other types of loans or financial aid.
- Subsidized loans are only available for undergraduate students.
What is an Unsubsidized Student Loan?
Unsubsidized loans are another type of federal student loan that are available to both undergraduate and graduate students, regardless of financial need. Unlike subsidized loans, however, the government does not pay the interest on unsubsidized loans while you are in school. This means that the interest on your loan begins accruing as soon as you receive the funds, and you are responsible for making interest payments while you are still in school if you want to minimize the amount of interest that accumulates.
To qualify for an unsubsidized loan, you must fill out the FAFSA and meet certain eligibility requirements. The maximum amount you can borrow with an unsubsidized loan varies based on your year in school and other factors, but for undergraduate students, the maximum is currently $12,500 per year.
The Pros of Unsubsidized Student Loans
- There is no requirement to demonstrate financial need in order to qualify for an unsubsidized loan.
- You can use the money you borrow to pay for a wide range of educational expenses, including tuition, room and board, and textbooks.
- Unsubsidized loans are available to both undergraduate and graduate students.
The Cons of Unsubsidized Student Loans
- You are responsible for paying the interest on the loan while you are in school, which means your loans can accrue a lot of interest if you don’t make payments while you are enrolled.
- The amount of money you can borrow with an unsubsidized loan is limited, which means you may need to supplement your financing with other types of loans or financial aid.
Which Type of Loan Should You Choose?
Ultimately, the type of student loan that is best for you will depend on your individual financial situation and educational goals. If you demonstrate financial need and are an undergraduate student, a subsidized loan can be an attractive option that can help ease the burden of interest payments while you are still in school. On the other hand, if you are not eligible for a subsidized loan or need to borrow more money than the subsidized loan limit allows, an unsubsidized loan may be a good fit.
As with any type of loan, it’s important to carefully consider the terms and conditions of the loan, including interest rates and repayment terms, before you apply. Paying for college can be a major financial investment, but by taking the time to make informed decisions about your borrowing options, you can help ensure that you are setting yourself up for success both during your academic career and beyond.