For students seeking financial assistance for higher education, federal student loans are a common option. These loans are divided into two main types: subsidized and unsubsidized. Knowing the key differences can help students make informed financial decisions, especially in a challenging economic climate with tightening restrictions on financial aid.
Subsidized Student Loans
Subsidized loans are designed for undergraduate students who demonstrate financial need. The amount a student qualifies for is determined by:
- Cost of attendance
- Expected family contribution
- Other financial aid received
Key Benefit
One major advantage of subsidized loans is that they do not accrue interest while the borrower is:
- Enrolled at least half-time in school
- In the six-month grace period after leaving school
- In deferment periods (when loan payments are postponed)
During these periods, the U.S. Department of Education pays the interest, which helps reduce the overall repayment amount.
Unsubsidized Student Loans
Unsubsidized loans are available to both undergraduate and graduate students, and they do not require financial need to qualify. Eligibility is still based on the cost of attendance, minus any other financial aid received.
Key Drawback
Unlike subsidized loans, unsubsidized loans begin accruing interest as soon as they are disbursed. Borrowers are responsible for paying this interest immediately, and if they choose not to, the interest is added to the loan balance, increasing the total repayment amount.
Interest
Subsidized loans do not accumulate interest while the borrower is in school or during deferment periods. In contrast, unsubsidized loans accrue interest immediately after being disbursed.
How to Apply
Students must complete the Free Application for Federal Student Aid (FAFSA) at studentaid.gov to apply for subsidized or unsubsidized loans.
Eligibility Requirements:
- Must be a U.S. citizen or permanent resident
- Must be enrolled at least half-time in an eligible program
- Must maintain satisfactory academic progress
- Must not be in default on previous federal aid
Each academic year, schools determine loan eligibility and the amount awarded based on FAFSA results.
Federal student loans can be a valuable resource for financing education, but knowing the terms and differences between subsidized and unsubsidized loans is essential for managing debt wisely.
FAQs
Which student loan doesn’t accumulate interest in school?
Subsidized loans do not accrue interest while in school or during deferment.
Do I need financial need for an unsubsidized loan?
No, unsubsidized loans are available regardless of financial need.
When does interest start on an unsubsidized loan?
Interest begins accruing immediately after the loan is disbursed.
How do I apply for federal student loans?
Complete the FAFSA form at studentaid.gov to determine eligibility.
Can graduate students get subsidized loans?
No, subsidized loans are only available to undergraduate students.