Difference Between Subsidized and Unsubsidized Student Loans

Many college students, past or present, will tell you they’ve heard of subsidized and unsubsidized federal student loans. However, not many college students, past or present, can explain the difference between the two or, what impact each can have once they enter repayment. This quick article will describe the difference between subsidized and unsubsidized student loans. 

The Difference Between Subsidized and Unsubsidized Student Loans

In essence, the difference between subsidized and unsubsidized student loans boils down to how the interest is structured. For subsidized loans, the government pays the interest on the loan as long as you are in school at least half-time or, are in the first 6 months after you leave school (also called the “grace period”), or during any other period of deferment. For unsubsidized loans, the opposite is true – you are responsible for the interest payments at all times. This means interest would accrue during any time loan payments are not being made.

Obviously, the subsidized option is the better deal on the borrowing end. However, it’s not as simple as saying “I’ll just take the subsidized loans.” In order to qualify for subsidized loans, you must demonstrate financial need, i.e. the government decides you lack or cannot obtain any other financial means to afford the high cost of borrowing money for college. For unsubsidized loans, the financial need does not need to be demonstrated, so the actual amount received will depend on the cost of attendance and any other financial aid you receive.

How much can I borrow?

For both types of loans, there are annual limits on how much you can borrow depending on what year of school you are in, your status as either a dependent or independent on your parents’ taxes, and whether or not the parents can obtain a Parent PLUS loan (federal student loan for parents to help their kids). Also, only a certain portion of the annual limit you qualify for can be comprised of subsidized loans. This means most students will have at least some of their loans unsubsidized, especially with the astronomical tuition rates these days. For more details on this, visit Studentaid.ed.gov. To see what your child may qualify for, visit Fafsa.gov and fill out an application together.

Alternative Options

Student loans have already become a national crisis here in the U.S. with the average student loan balance hovering around $30,000 and the overall outstanding debt at over $1.4 trillion. Student loans are a massive financial burden for many that hold them back from building wealth and achieving financial freedom sooner in their lives. We all know how expensive college has become and the need it has created to borrow money in order to attain it, but that doesn’t mean massive amounts of debt must be accrued just to get a college degree. Prerequisite courses can be completed at a lower cost at community colleges. Or if your child is fortunate enough to receive an academic or athletic scholarship to relieve some of the burden. Lastly, albeit a hard decision for young individuals to make, is working and doing classes part-time. Completion of a college degree may take longer, but surely the hard work is character building while pursuing both a job and a degree.

Below you’ll find some additional resources, but if you find you’d still like some additional help or advice in this matter, feel free to schedule a free consultation, and we’ll be happy to help. Happy studying!


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Chad Rixse grew up in Anchorage, Alaska and lived in Seattle, WA for 11 years where he graduated from the University of Washington before moving back to Alaska. He is fluent in Spanish, loves to travel and connect with other cultures. He’s been helping clients plan for their financial futures since 2014 and has an immense passion for helping others and making a positive impact in their lives. Outside of work, he’s a self-professed golf addict, foodie, and master taco maker.