The Difference Between Subsidized and Unsubsidized student Loans

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It’s that time: you need to line up funding for your schooling. You’ve been putting it off because it all seems so confusing! Well, that’s mostly because you aren’t familiar with many of the terms involved. For instance, you know you’re going to need student loans, but you don’t know the difference between subsidized and unsubsidized student loans. It’s important that you do. Read on for an explanation. 

The Issue

You need to get a federal student loan to help get you through college, but did you know the kind of loan you get – subsidized or unsubsidized – will impact your student loan bill?

How are Subsidized and Unsubsidized Student Loans Different?

Before we get into that, know both kinds of loans are part of the government’s direct loan program. Ultimately, though, if you’re financially eligible for subsidized loans, you’ll shell out less at length than you would with unsubsidized loans.

Why Do Subsidized Loans Save Money?

It’s true that subsidized loans for undergrads have the same interest rate as unsubsidized loans. However, interest on your subsidized loan will not accrue while you’re in school and during other nonpayment periods. 

What are Subsidized Loans?

You will need to qualify for these, in the form of financial need, and you must be an undergrad student. You also will have lower loan limits relative to unsubsidized loans. And, while you’re in college at least half-time, the Education Department covers your interest. 

You can try for private loans if you don’t qualify for Federal loans. You may or may not pay more in interest, but if in the future such rates make repayment untenable, you can always do a student loan refinance, which can save you cash over time. What is refinancing? It’s basically when you take out a new loan with lower interest to cover your existing loans.

What are Unsubsidized Loans?

With these, you needn’t demonstrate financial need and you’ll have higher loans limits compared with subsidized loans. These loans are available to undergrad, graduate, and professional degree students (medical, law, etc.). As with subsidized loans, students must be enrolled at least half time. 

What are the Maximum Eligibility Periods?

There’s no time limit on using unsubsidized loans. First-time borrowers with subsidized loans have six years for a four-year program and three years for a two-year program.

What are the Loan Limits?

  • Subsidized. While annual limits vary, they are usually less than their unsubsidized counterparts. Check out this scenario: say you’re a first-year dependent undergrad. Well, you can borrow $3,500 in subsidized loans, compared with $5,500 in unsubsidized loans. Overall, the cap for your entire education is $23,000.
  • Unsubsidized. These loan limits also vary, but are usually higher than subsidized restrictions. While you’re in school, the entire limit is $31,000 for dependent undergrads and $138,500 for grad students.

What About Interest Rates?

For subsidized loans disbursed through June 30, 2022, the fixed annual percentage rate is 3.73%. For unsubsidized loan borrowers, the fixed rate is 3.73% for undergrads, 5.28% for graduate or professional degree loans, and 6.28% for what are called PLUS loans.

Ultimately, the difference between subsidized and unsubsidized student loans is you’ll save more in interest over time with the former. So, it would behoove you to use up any subsidized loans offered before seeking unsubsidized loans. And remember: if refinancing enters the picture, the servicer Juno is your best bet.