Difference Between Subsidized And Unsubsidized Loans

Q: What is the difference between subsidized and unsubsidized loans? Will I get to choose between subsidized and unsubsidized student loans, or will I be told which type I qualify for?

A: Students will not get to choose between subsidized and unsubsidized student loan programs as part of their financial aid award package. Getting subsidized or unsubsidized student loans, or a combination of both will depend on what type of loans you are eligible to receive, which is determined after the student completes a FAFSA. The main difference between subsidized and unsubsidized loans is when the interest begins to accrue.

For example, Stafford Subsidized Loans are student loans awarded based on a student’s financial need. If a student qualifies for this type of subsidized student loan, interest will not accrue on the student loan while the student is in school (at least half time), and interest will not accrue on the student loan during any deferment periods. The federal government will subsidize (pay) the interest during these times.

Unlike Stafford Subsidized Loans, Stafford Unsubsidized Loans are student loans that are not based on a student’s financial need. The interest on this type of unsubsidized student loan will accrue from the time the loan is first disbursed until the time it is paid off in full. The student (borrower) will be responsible for paying all of the accrued interest on an unsubsidized student loan.