What is the difference be subsidized and unsubsidized student loans?
♥Cronin Fan♥ asked:
My daughter has been awarded these types of loan from filing with FAFSA and I’m just not sure what the difference is (though I’d rather try to keep from having to use loans for her education).
My daughter has been awarded these types of loan from filing with FAFSA and I’m just not sure what the difference is (though I’d rather try to keep from having to use loans for her education).
Thanks!
Tags: Fafsa, Subsidized And Unsubsidized Student Loans, Unsubsidized Student Loans
May 27th, 2011 at 5:04 am
Direct Stafford Loans are low-interest loans for eligible students to help cover the cost of higher education. You are correct in trying to find other sources for financial aid, like scholarships and grants, instead of taking on loans.
“Direct Subsidized Loans: Direct Subsidized Loans are for students with financial need. Your school will review the results of your Free Application for Federal Student Aid (FAFSASM) and determine the amount you can borrow. You are not charged interest while you’re in school at least half-time and during grace periods and deferment periods.
Direct Unsubsidized Loans: You are not required to demonstrate financial need to receive a Direct Unsubsidized Loan. Like subsidized loans, your school will determine the amount you can borrow. Interest accrues (accumulates) on an unsubsidized loan from the time it’s first paid out. You can pay the interest while you are in school and during grace periods and deferment or forbearance periods, or you can allow it to accrue and be capitalized (that is, added to the principal amount of your loan). If you choose not to pay the interest as it accrues, this will increase the total amount you have to repay because you will be charged interest on a higher principal amount.”
May 27th, 2011 at 1:03 pm
John’s answer is correct, but may I add the following information:
in addition to the difference in interest accrual, unsubsidized loans carry a higher interest rate than subsidized loans. Currently, subsidized loan interest rate is 5.6% whereas unsubsidized interest rate is 6.8%. It is preferable to steer clear of unsubsidized loan borrowing as much as possible, since those loans will cost more over time.