Subsidized vs Unsubsidized Student Loans

The U.S. Department of Education offers eligible students Subsidized and Unsubsidized loans to help cover the cost of higher education at a college or university, community college, or trade, career, or technical school. To know more about this read the article.

Posted by Akshay Nair P R on 11th May 2018

Subsidized vs Unsubsidized Student Loans

Most students need to use federal student loans or private student loans to fund their college educations.

Once you take out federal student loans to pay money for college, the loans are either Direct Subsidized Loans or Direct Unsubsidized Loans.

Subsidized Loans

These loans are for undergraduates who need financial assistance, it is mainly determined by the income of the student's parents.

In Subsidized Loans, Federal Government will pay the interest on the loan while the student is in school. i.e. if a student takes $10,000 Subsidized loan as a Freshman, then four years later, your loan balance would still be $10,000 as the government had made the payment for you.

Even though there is a certain time limit for the payment of that loan back, once that time limit is exceeded then your outstanding loan will begin accruing interest and also you would no longer be eligible for more Subsidized loans.



US Govt pays the interest

Graduate students are not allowed for it

The loan Interest is paid by the government on eligible loans during deferment and forbearance, as well as on certain repayment plans

Those who can't demonstrate financial needs are not qualified for it

During first six months of graduation, no payments are due

Annual loans limits are lower

Unsubsidized Loans

  • These loans are for both graduates and undergraduate students.

  • These loans are not based on financial needs.

  • The eligibility for this loan is determined by the cost of attendance minus other financial aid.

  • Unlike unsubsidized loans, in this, the govt will not pay the interest. You can choose to pay the interest regularly or you can pay it after capitalizing, but in this, the amount you will have to repay will increase.



Both Graduates and Undergraduates can apply

Govt. does not pay interest

No need to prove financial status

If interest, not paid Capital become too high

Annual loan limits are higher

Too much load on students as interest starts during college only

Current Interest rates

Loan Type

Borrower Type

Loans first disbursed on or after 7/1/17 and before 7/1/18

Subsidized Loans



Unsubsidized Loans



Unsubsidized Loans

Graduate or Professional


Quick Overview of the difference between Subsidized and Unsubsidized loans

Subsidized Loans

Unsubsidized Loans

Based on Financial need

Qualify for it regardless of the financial needs

Only for Undergraduates

Available for both Graduates and Undergraduates

Govt. pays interest till first six months after you leave college

Govt. charge interest from the time  your loan has been sanctioned

Amount sanctioned is less

Amount sanctioned is higher 


Weather Subsidized or Unsubsidized both loans are helpful for those who want to complete their education at first without using their money, and there can be numerous reasons for that. But, the catch here is that getting loans is easy as you have two options. The thing one must not forget is that repayment is something that should always be in the back of the mind. As otherwise, it will pile up and then it would be difficult to repay.


  1) Is it better to pay off subsidized or unsubsidized loans first?

In this case, you must first pay off your unsubsidized loan first as it is the loan that would start incurring loan first and then it will be added to your principal amount so it would be better to pay off your unsubsidized loan first.

  2) Can I pay student loan off early?

All education loans allow early payment. So it is possible to pay off the student loan early.

  3) Will student loan cover everything?

Student loan covers the tuition fee, mandatory fee, Cost of living on campus, books and other educational expenses only.

  4) What happens when you defer on your student loan?

Also known as forbearing, a deferment excuses a student from making student loan payment for a period of time because of a specific condition in your life. Which can be economic hardship, returning to school or even unemployment. During this period interest will not occur on subsidized loans.

  5) How will I receive my loan?

The school will first apply your loan funds to your school account to pay for tuition, fees, room and board, and other school charges. If any additional loan funds remain, they will be returned to you.