What is the Difference Between Subsidized and Unsubsidized Loan?
🆚 Go to Comparative Table 🆚The main difference between subsidized and unsubsidized loans lies in the interest accrual:
- Subsidized Loans: These loans are for undergraduate students with financial need. The federal government pays the interest while the student is in school at least half-time or during deferment periods. The interest rate is fixed at 4.99% for undergraduates.
- Unsubsidized Loans: These loans are available to both undergraduate and graduate students, regardless of financial need. Interest starts accruing as soon as the loan is disbursed. Students can choose to pay the interest or allow it to accrue and be capitalized (added to the principal amount of the loan). The interest rate is fixed at 4.99% for undergraduates and 6.54% for graduate and professional borrowers.
In summary, subsidized loans are better for borrowers who can demonstrate financial need, as the federal government covers the interest during specific periods. Unsubsidized loans are suitable for students who do not qualify for subsidized loans or need additional funding. It is generally recommended to exhaust subsidized loans before taking out unsubsidized loans. Both types of loans are part of the federal Direct Loan Program, and to apply for them, students need to submit the Free Application for Federal Student Aid (FAFSA).
Comparative Table: Subsidized vs Unsubsidized Loan
The main difference between subsidized and unsubsidized loans is that subsidized loans are based on the borrower's financial needs, while unsubsidized loans are not. Here is a table outlining the key differences between these two types of loans:
Subsidized Loans | Unsubsidized Loans |
---|---|
Only for undergraduate students | For undergraduate, graduate, and professional degree students |
Must demonstrate financial need | No need to demonstrate financial need |
Eligible students must be enrolled at least half-time | Eligible students must be enrolled at least half-time |
Government pays interest up to six months after graduation | Borrower responsible for all interest accrued |
Interest does not accrue while student is in school at least half-time | Interest starts accruing as soon as the loan is disbursed |
Interest rate of 4.99% for undergraduates | Interest rate of 4.99% for undergraduates, 6.54% for graduate and professional borrowers |
Has a loan limit of $23,000 | Loan limit higher than subsidized loans, totaling $31,000 for dependent undergraduate students, $57,500 for independent undergraduates, and $138,500 for graduate or professional students |
Both subsidized and unsubsidized loans offer numerous benefits, including flexible repayment options, low interest rates, the option to consolidate loans, and forbearance and deferment programs. They also have the same loan fees, which can be up to 1.059%.
- Secured Loans vs Unsecured Loans
- Grant vs Loan
- Loan vs Borrow
- Loan vs Debt
- Loan vs Mortgage
- Lending vs Borrowing
- Fixed vs Variable Loans
- Bond vs Loan
- Secured vs Unsecured Bond
- Debenture vs Loan
- Scholarships vs Grants
- Secured vs Unsecured Credit Cards
- Loan of Credit vs Line of Credit
- Subsidy vs Tax
- Secured vs Unsecured Credit Card
- Loan vs Lease
- FHA vs Conventional Loans
- Lending Rate vs Borrowing Rate
- Bank Overdraft vs Bank Loan