Subsidized vs Unsubsidized Loans – Difference and Comparison

What are Subsidized Loans?

Subsidized loans are a type of financial aid that is based on need. In order to qualify, students or their families must demonstrate financial need. Then, based on this need, the loan is granted. A subsidized loan is a great alternative for students who might not be able to attend college without some financial support.

A subsidized loan is a need-based loan. This means that student or their family must demonstrate financial need to qualify. The U.S. Department of Education pays the interest that accrues on subsidized loans while the student is in an in-school deferment or during the grace period. Federal student loans with subsidies are available to qualified students who require money.

The U.S. Department of Education covers the interest on a subsidized loan while the student is in school, during the grace period, and during deferment periods. This can save the student money in the long run. At the same time, the borrower is enrolled at least 50 percent throughout the time limit and the deferred periods.

Subsidized loans are an important part of financial aid because they allow students who would not be able to attend college, otherwise the opportunity to get a degree. Subsidized loans are a great option for students who cannot afford college without some form of financial assistance.

What are Unsubsidized Loans?

Federal unsubsidized loans are available to anyone pursuing a degree, regardless of financial need. Interest begins accruing on unsubsidized loans as soon as the money is borrowed. The unsubsidized loan has a lifetime limit of $23,000 for undergraduates and $34,500 for graduate students, including any subsidized loans borrowed from undergraduate students.

If someone still has unsubsidized loans from their undergraduate degree, the interest from their graduate school unsubsidized loans will be capitalized and added to the principal balance of their loan.

A Stafford loan for education that is not based on need is unsubsidized. The candidate must be enrolled at least half-time in a degree- or certificate-granting program to be eligible. An unsubsidized loan accrues interest from the moment it is initially disbursed, and the borrower is in charge of paying it.

When graduates drop below a half-time load or cease attending, their unsubsidized loans become due. However, if it has a Direct Unsubsidized Loan, it gets a six-month grace period before being required to begin making monthly payments.

Difference Between Subsidized and Unsubsidized Loans

There is difference between subsidized and unsubsidized loans.

A subsidized loan is given based on financial need, established by the data provided on the Free Application for Federal Student Aid, or FAFSA. A subsidized loan is a loan determined by need. This implies that someone or their family must show that they have a financial need to be eligible.

Financial need is taken into account when granting a subsidized loan. The interest that accumulates on subsidized loans while the student is enrolled in classes or during the grace period is paid by the U.S. Department of Education.

Government funding is provided for interest on a need-based, Unsubsidized loans are not based on financial need, and the student is responsible for paying all interest that accumulates.

Comparison Between Subsidized and Unsubsidized Loans

Parameters of ComparisonSubsidizedUnsubsidized  
What is required to be eligibleMust provide proof of financial needNot required to provide proof of financial need  
Borrowing amountLoan ceilings that are lower than those for unsubsidized loansHigher loan limitations than those for subsidized loans  
How interest functions for college studentsThe concerned department of the student pays interestInterest builds up    
Who is EligibleExclusively undergraduate studentsStudents pursuing undergraduate, graduate, or professional degrees