What's the difference between subsidized and unsubsidized loans?
The main difference between subsidized loans and unsubsidized loans is that the federal government pays the interest on subsidized loans during periods of authorized deferment, such as the in-school and economic hardship deferments, while the interest remains the responsibility of the borrower on an unsubsidized loan. This makes subsidized loans a less-expensive option for students.
During the in-school deferment, the obligation to repay a federal education loan is suspended while the borrower is enrolled at least half-time. Payments of principal and interest are deferred (delayed) until the end of the grace period after graduation, when the borrower enters repayment on the loan. With subsidized loans, the federal government pays the interest as it accrues. With unsubsidized loans, the interest is capitalized (added to the loan balance) if unpaid by the borrower as it accrues. This is in contrast with a forbearance, where the interest is the responsibility of the borrower on both subsidized and unsubsidized loans.
Examples of subsidized loans include the subsidized Federal Stafford Loan and the Federal Perkins Loan. Examples of unsubsidized loans include the unsubsidized Federal Stafford Loan and the Federal PLUS Loan. Eligibility for subsidized loans is based on financial need, while eligibility for unsubsidized loans is not.
Subsidized and unsubsidized loans may differ in other ways, such as differences in interest rates and loan limits. For example, the subsidized Federal Stafford loan has annual loan limits of $3,500 during the freshman year, $4,500 during the sophomore year, $5,500 during the junior year and $5,500 during the senior year and subsequent years. The annual loan limits for the unsubsidized Federal Stafford Loan include any amounts not received as a subsidized loan up to the overall Federal Stafford Loan limit, which is $2,000 per year higher for dependent students. Thus the sum of subsidized and unsubsidized Federal Stafford Loans can be no more than the overall annual loan limits shown in this table:
|Overall Federal Stafford Loan Limits (Annual)|
|Year in School||Dependent Student||Independent Student|
|Senior & Subsequent Years||$7,500||$12,500|
Stafford Loan Frequently Asked Questions
- Am I eligible for a Stafford Loan?
- How do I apply for a Stafford Loan?
- Are there Stafford Loan deadlines?
- What's the difference between unsubsidized and subsidized loans?
- When do I receive the Stafford Loan funds?
- What are the Stafford Loan interest rates?
- How much can I borrow under a Stafford Loan?
- What is EFC and how is it calculated?
- What can I use a Stafford Loan for?
- Are there specific schools that accept Stafford Loans?
- Do I have to apply for a Stafford Loan every academic year?
- Can I receive a Stafford Loan if I have bad credit/declared bankruptcy/have late payments on credit cards?
- Will I pay any fees for a Stafford Loan?
- What are the repayment options for a Stafford Loan?
- What are the penalties for early payment or if the loan is paid in full before scheduled (deferred) payments begin?