“Subsidized vs. Unsubsidized Loans”


The topic of student loans is lengthy ground to cover. Among the various facets of these types of loans is the debate between subsidized and unsubsidized. Which one should a student choose? Which one will prove to be more beneficial in the long run?


When choosing a student loan to help you pay for college, the type you decide to take out — whether it be subsidized or unsubsidized — will impact how much you owe after you graduate. Therefore, understanding the differences between the two is important as it will help you determine which is more suitable for you.


Exhibit A: Subsidized


Subsidized loans are specifically for undergraduate students with financial need. It is determined by your attendance cost minus expected family contribution and other types of financial aid. Such examples include scholarships and/or grants. These loans do not accumulate interest during deferment periods or while you are in school half-time at a minimum.


If you qualify for a subsidized loan, they will offer an array of benefits. They provide borrowers with a much lower interest rate than unsubsidized loans typically offer. Moreover, the government pays the interest on them while you are in school. Likewise, during the six-month grace period for repayment after graduation. With that said, subsidized loans are available only to students displaying financial need and they can be used for undergraduate studies.


Exhibit B: Unsubsidized


Unsubsidized loans are for both undergraduate and graduate students. Unlike subsidized loans, they are not based on financial need and are not accompanied by an interest subsidy. These loans accrue interest around the clock, which the borrower has to eventually pay. However, much like subsidized loans, one does not have to start paying off unsubsidized loans until their grace period comes to an end. Only then will interest that has accumulated be capitalized, or added to the principal balance that was originally borrowed.


Unsubsidized loans provide their own share of benefits. As previously mentioned, they can be used for both undergraduate and graduate school. Moreover, there is no qualification requirement for a student to show financial need. While the interest starts accumulating as soon as you take out the loan, it is not mandatory to pay the loans back until you have officially graduated. On top of that, unlike private loans, there are no credit checks when you apply.


Final verdict


Both subsidized and unsubsidized loans have the capacity to help students pay for college. Nevertheless, they must remember that either loan type must eventually be repaid and with interest. One must think long and hard about how much they will need to borrow and which repayment option will work better when it comes to your budget.