What are subsidized and unsubsidized loans?

The difference between subsidized and unsubsidized loans

The terms subsidized and unsubsidized student loans are often confused and/or misunderstood, but the explanation is rather simple and easy to understand.

Neither term refers to or affects repayment during your active student years. Federal student loans do not require scheduled monthly payments during the period that the student is at least enrolled “half time” at an accredited college or university. Here are the primarily highlights showing the difference between these two loan types.

Subsidized loans:

• Have their accrued interest paid by the Federal government during the student’s university attendance.
• Are primarily granted based on documented need.

Unsubsidized loans:

• Accrue interest during university attendance and become part of the scheduled monthly payment when the student completes their education and joins the workforce.
• Do not require a documented “need” component.

Both loans still offer low interest rates and defer scheduled repayment terms until after the student has completed his/her education and is earning full time compensation. You’ll have the opportunity to consolidate your outstanding loans in the future to reduce multiple loan payment requirements to one affordable monthly amount.

If you qualify for a subsidized loan, your monthly payment will not include interest that was accrued (due) during your education years and deferral period.