Subsidized vs Unsubsidized Student Loans: What’s the Difference?

Key Takeaways:

• The government pays the interest on subsidized loans. While both Direct Subsidized and Direct Unsubsidized Loans begin accruing interest immediately after disbursement, the government pays the interest that accrues on subsidized loans when you are a student, during your grace period, or when your loans are in deferment
• Subsidized loan benefits are valuable. The differences between subsidized and unsubsidized student loans can translate into thousands of dollars in interest
• Accept Direct Subsidized Loans first. Whenever possible, students should accept Direct Subsidized Loans before turning to Direct Unsubsidized Loans

Before accepting all of the loans offered to you in your financial aid package, it’s important for you to understand the differences between the varieties of loans being offered to you.

Two of the most common federal student loan types currently offered to students are Direct Subsidized Loans and Direct Unsubsidized Loans, also known as subsidized and unsubsidized Stafford Loans.

Though they may sound similar, there is one key difference: Federally subsidized student loans do not accrue interest while you are in school, during your six-month grace period, or when you place your loans into deferment. (Or, more precisely, they accrue interest just like unsubsidized loans, but the government covers the interest so you don’t have to.)

This difference alone means that subsidized student loans can cost students thousands of dollars less in interest payments over the life of the loan compared to unsubsidized student loans.

Subsidized loan definition & info for students

The federal government offers subsidized loans based on the student’s financial need when applying for aid through the Free Application for Federal Student Aid (FAFSA). The key components of a subsidized student loan (and the biggest benefits) are:

• The U.S. Department of Education pays for any interest accrued while you are in school. To receive this benefit, you must be enrolled at least halftime.
• You’ll also get a six-month grace period after graduation, meaning that any interest that accrues during your college career and six months afterward, is completely paid for.

When the grace period ends, though, you are required to make monthly payments of principal and interest. Unfortunately, subsidized loans are only available to undergraduate students. You can also take advantage of this benefit if you choose to defer your student loans, however, if you wish to put your loans in forbearance interest will still accrue on a subsidized loan.

Unsubsidized student loans, on the other hand, begin accruing interest from the date of your first loan disbursement, though you’re not required to pay that interest until you finish school. When you graduate, the amount of money that accrued during your education is simply added to the principal loan amount and you begin paying off that new amount.

One benefit to taking out a federal unsubsidized loan is that you are not required to demonstrate financial need so the amount you can take out is much higher than a subsidized student loan. Additionally, unsubsidized federal student loans are available for both undergraduate and graduate students.

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Subsidized vs. unsubsidized loans: which is for you?

Federal subsidized and unsubsidized direct federal loans for undergraduates carry the same low, fixed interest rate, so it is generally a good idea to take out a subsidized loan before taking on additional debt with an unsubsidized loan.

If you are planning on going back to school, subsidized loans can help save a lot of money in deferment since interest will not accrue.

Private loans

If you do not have a choice because of your lack of financial need or because you are attending graduate school, your next option is to choose between a federal unsubsidized loan, a federal PLUS loan, or a private student loan.

Rates on all newly-issued federal loans are set to increase on July 1, 2017. Borrowers who are only eligible for federal PLUS loans or unsubsidized direct loans for graduate students may qualify for better rates from private lenders — particularly if they have a cosigner. Many private lenders now offer loans that are competitive with federal PLUS loans, which carry a 4.272 percent up-front disbursement fee that’s not charged by private lenders.

We’ve compiled our most trusted lending partners in the table below. Private loans could make sense for you – and with Credible you can cover 100% of your school-certified costs and finance almost any degree with one simple process. Compare rates from our vetted lenders and pick the option that fits you best:

Lender	Rates from (APR)	Loan Term (years)
View details	Fixed: 5.25%+¹ Variable: 4.26%+¹	5, 10, 15¹	Get Rates
Loan products • Undergraduate, graduate, and parent loans • Fixed and variable interest rates Loan amounts • $1,000 up to $170,000 Eligibility • Must be a U.S. citizen or permanent resident • Must be enrolled at least half-time in a degree-granting program at an eligible institution • International students can apply with a creditworthy U.S. citizen or permanent resident co-signer
College Ave - View details	Fixed: 5.29%+2 Variable: 3.94%+2	8, 10, 12, 153	Get Rates
Loan products • Undergraduate and graduate loans • Fixed and variable interest rates Loan amounts • $2,000 up to 100% of your school-certified cost of attendance Eligibility • Available to all US residents that attended an eligible undergraduate or graduate school • Students with little or no credit history will benefit from having a creditworthy co-signer
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Discover - View details	Fixed: 6.34%+ Variable: 4.34%+	15, 20	Get Rates
Loan products • Undergraduate and graduate loans • Fixed and variable rates Loan amounts • Up to 100% of your school-certified tuition, housing, books and more, up to aggregate loan limits Eligibility • Must be a U.S. citizen or permanent resident • Must be enrolled at least half-time in a degree-granting program at an eligible institution • Must be making satisfactory academic progress as defined by your school More details about Discover student loans
EDvestinU - View details	Fixed: 4.50%+ Variable: 4.31%+	7, 10, 12, 15, 20	Get Rates
Loan products • Undergraduate and graduate loans • Fixed and variable rates Loan amounts • Minimum loan amount of $1,000 and maximum aggregate of $200,000 Eligibility • Must be a U.S. citizen or permanent resident • Student must be admitted to or enrolled at least half-time at an eligible institution when applying • Borrower must have an annual income of at least $30,000 or cosigner More details about EDvestinU student loans
iHelp - View details	Variable: 4.63%+	20	Get Rates
Loan products • Undergraduate and graduate loans • Variable rates only Loan amounts • Undergraduates: $1,000 ($3,000 for Georgia residents) up to $100,000 • Graduates: $1,000 ($3,000 for Georgia residents) up to $150,000 Eligibility • Must be a U.S. citizen or permanent resident • Borrower or cosigner must have at least 3 years of positive credit history and annual income of $18,000 or greater • Must be enrolled at least half time in an iHELP eligible school
INvested - View details	Fixed: 6.42%+ Variable: 3.47%+	5, 10, 15	Get Rates
Loan products • Undergraduate and graduate loans • Fixed and variable rates Loan amounts • $1,001 up to 100% of your school-certified cost of attendance Eligibility • Only available to Indiana residents or U.S. residents attending an eligible Indiana school
Raise - View details	Variable: 6.08%+	5, 7, 10	Get Rates
Loan products • Undergraduate and graduate loans • Variable rates only Eligibility • The raise^ private student loan program is available only to students with a permanent residence in Alabama, Arizona, Arkansas, California, Colorado, Florida, Georgia, Indiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, South Carolina, Tennessee, Texas, Washington or West Virginia and cosigners in any state except Wisconsin • Must be a U.S. citizen or permanent resident • Must be earning income (or apply with a cosigner who is) • Available to students enrolled at least half-time at an eligible institution
Sallie Mae - View details	Fixed: 5.74%+4 Variable: 4.37%+4	5-155	Get Rates
Loan products • Undergraduate and graduate loans • Fixed and Variable interest rates Eligibility • Must be a U.S. citizen or permanent resident; non-U.S. citizen students, including DACA students attending a school located in the U.S., are eligible to apply with a creditworthy cosigner who is a U.S. citizen or U.S. permanent resident with required U.S. Citizenship and Immigration Service (USCIS) documentation; • Available to students enrolled full-time, half-time, and less than half-time
Ready to find your student loan? Get Rates
All APRs reflect autopay and loyalty discounts where available | 1Citizens Bank Disclosures| 2,3College Ave Disclosures |raise^ Repayment Examples | 4,5Sallie Mae Disclosures

Learn more

Here are some articles with more detailed information on taking out and repaying federal direct subsidized and unsubsidized loans, PLUS loans, and private student loans.

• If you must borrow for college, start with subsidized student loans
• Hidden costs of federal direct unsubsidized student loans
• How and when to use private student loans to fill college funding gaps

Citizens Bank Student Loan Rate Disclosure

Variable rate, based on the one-month London Interbank Offered Rate ("LIBOR") published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of November 1, 2018, the one-month LIBOR rate is 2.29%. Variable interest rates range from 4.26%-12.23% (4.26%-12.13% APR) and will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 5.25%-12.19% (5.25% - 12.09% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown requires application with a cosigner, are for eligible applicants, require a 5-year repayment term, borrower making scheduled payments while in school and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of the loan.

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