Subsidized vs. Unsubsidized Loans

Learn the differences between unsubsidized and subsidized student loans

There are many small but potentially crucial details you'll need to pay attention to when sorting through various loan options and comparing financial aid award packages. One of which is the difference between subsidized and unsubsidized loans. The former generally refers to loan programs where the government pays the interest on the loan while the student is enrolled in school.

It's always a good idea to exhaust subsidized college loans - which can both lower the interest rate you and your child will pay and defer repayment of the loan - before filling the remaining expense gap with private loans.

Subsidized student loan details

A subsidized loan is one in which a borrower is not responsible for paying the interest while they're still in school, or during a period in which they have earned a grace period or a deferment. Subsidized loans are awarded to those students that demonstrate a financial need. There are several types of subsidized loans including the Federal Subsidized Stafford and Consolidation Loans:

  • Direct subsidized loans
  • Direct subsidized consolidation loans
  • Federal subsidized Stafford loans
  • Federal subsidized consolidation loans

Schools usually only participate in either the direct loan program or the federal loan program—although a few schools do both but it's not common—so check with your school to see which program they participate in. It's also important to keep in mind that students can only be awarded one type of subsidized loan in a given year—either a federal subsidized loan or a direct subsidized loan.

Unsubsidized student loan details

Unsubsidized loans apply interest to the loan amount from the start. Interest on unsubsidized loans begins accruing upon disbursement (or upon enrollment in school), and continues through the full life of the loan. Unsubsidized loans can include:

  • Direct unsubsidized loans
  • Direct PLUS Loans
  • Direct unsubsidized consolidation loans
  • Federal unsubsidized Stafford Loans
  • Federal PLUS Loans
  • Federal unsubsidized consolidation loans

Again, schools usually only participate in either the direct loan program or the federal loan program—although a few schools do both but it's not common—so check with your school to see which program they participate in. Similar to subsidized loans students can only be awarded one type of unsubsidized loan in a given year—either a federal unsubsidized loan or a direct unsubsidized loan. The same goes for the PLUS loan—parents can only take out a Direct PLUS Loan or Federal PLUS Loan in any given year (but not both) so check with your school to see what program they participate in.

Learn more about affordable student loan options from Charter One

You can find helpful information about financing your college education, including federal and private loan options. If you are interested in additional student loan resources or have questions, call a student loan specialist at 1-800-721-3969, and we'll help walk you through the entire process of financing your child's education.

Additional student loan and college planning resources

APR 101: What Does APR Mean?
Student Loan Repayment
What happens to my loans when I graduate?
Student Loan Deferment and Deferred Interest
 
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