What is the Difference Between Subsidized and Unsubsidized Student Loans?

STUDENT LOANS
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There’s a lot of confusing student loan terminology out there. When you’re looking at student loan options, you’ll likely hear a lot about subsidized and unsubsidized loans. If you’re not sure what they mean, don’t worry. We’ll break down what it all means, plus what the difference between subsidized and unsubsidized student loans is below.

What are subsidized student loans?

Subsidized student loans are offered by the Department of Education to help students pay for college. Called a Direct Subsidized Loan, these loans are available to undergraduate students who demonstrate financial need. The key benefit of a Direct Subsidized Loan is that the federal government pays the interest on your loan while you are in school at least half-time, in your grace period (the first six months after you leave school), or in a period of deferment.

The current interest rate on a Direct Subsidized Loan is 5.05% (for loans disbursed between 7/1/19 and 7/1/20).

What are unsubsidized student loans?

Unsubsidized student loans, or Direct Unsubsidized Loans, are another type of loan offered by the Department of Education. These loans are available to undergraduate, graduate, and professional students, and you do not need to demonstrate financial need to be eligible. However, you are responsible for paying the interest that accrues from the day your loan is disbursed. You aren’t required to pay the interest while you are in school, in the grace period, or in deferment. However, if you choose not to, the interest will be capitalized when you enter repayment. (This means that the interest that has been accruing since you took the loan out will be added to your total loan balance at this time.)

The current interest rate on a Direct Unsubsidized Loan for undergraduate students is 5.05%. The current interest rate on a Direct Unsubsidized Loan for graduate or professional students is 6.6%. (For loans disbursed between 7/1/19 and 7/1/20.)

There’s a lot more confusing student loan terms out there. Now that you know what the difference between subsidized and unsubsidized student loans is, check out our guide to student loan terminology here!

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