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	Fixed Rates From (APR)	Variable Rates From (APR)	Get Rates Through Credible
View details	3.97%+	3.63%+	Get Rates Ascent review
Loan terms: 5 or 10 years (Ascent Tuition loan, 15-year term also available with variable-rate loans); 10 years (Ascent Independent loan, 15-year term also available with variable-rate loans) Loan amounts: $2,000 minimum, up to school's cost of attendance within $200,000 cap Repayment plans: Defer payments or make interest-only or $25 minimum monthly payment while in school Application fees: No application, origination, or disbursement fees Discounts: 0.25% automatic payment discount, 1% cash back graduation reward Cosigner release option: Cosigner release available after 24 months of consecutive monthly on-time payments Eligibility: Ascent Tuition: Minimum FICO 600 (borrower with cosigner) and 660 (cosigner). Cosigner not required for Ascent Independent loan. No minimum income or credit score requirement for borrowers with less than two years of credit history. Borrowers with two years of credit history need 680 credit score and $24,000 annual income. Loan servicer: University Account Service (UAS)
View details	4.40%+¹	3.17%+¹	Get Rates Citizens Bank review
Loan terms: 5, 10, 15 years Loan amounts: $1,000 minimum, school’s cost of attendance up to $150,000 for undergraduates and graduate degrees; $225,000 MBA and law; $350,000 medical school and parent loans) Repayment plans: Pay immediately, pay interest only, or defer payments Application fees: No application, origination, or disbursement fees Discounts: 0.25% loyalty discount available (if you have another qualifying account with Citizens Bank) as well as a 0.25% automatic payment discount Cosigner release option: Cosigner release available after 36 months of consecutive monthly on-time payments Eligibility: U.S. citizens or permanent residents; international students can apply with a creditworthy U.S. citizen or permanent resident cosigner Loan servicer: Firstmark Services
View details	4.72%+2	3.70%+2	Get Rates College Ave review
Loan terms: 5, 8, 10, 15 years Loan amounts: Up to 100% of the school-certified cost of attendance ($1,000 minimum) Repayment plans: Make full principal and interest, interest only, or flat payments while in school; or defer payments until six months after leaving school Application fees: No application, origination, or disbursement fees Discounts: 0.25% rate deduction with autopay Cosigner release option: Cosigner release available once more than half of the scheduled repayment period has elapsed. Eligibility: Available to all U.S. residents attending an eligible undergraduate or graduate school Loan servicer: University Accounting Service LLC
View details	4.74% - 12.49%6	3.37% - 11.87%6	Get Rates Discover review
Loan terms: 15 years (undergraduate) or 20 years (graduate, MBA and professional loans) Loan amounts: Up to 100% of the school-certified cost of attendance Repayment plans: Defer payments until 6 months after leaving school, or make interest only or fixed monthly payments while enrolled. Application fees: No application, origination, or disbursement fees Discounts: 0.25% autopay discount; good grade award (one-time cash reward for each new loan for earning 3.0 GPA or equivalent) Cosigner release option: Not offered Eligibility: U.S. citizen, permanent resident or international student (international students require a cosigner who is a U.S. citizen or permanent resident). Be 16 years or older at the time you apply Loan servicer: Discover Bank
View details	4.50%+	4.09%+	Get Rates EDvestinU review
Loan terms: 7, 10, 12, 15 and 20 years Loan amounts: Minimum loan amount of $1,000 up to school-certified cost of attendance with $200,000 cap Repayment plans: Full deferment, interest-only payments, and principal and interest payments Application fees: No application, origination, or disbursement fees Discounts: 0.5% autopay discount Cosigner release option: Cosigner release available after 24 months of on-time payments Eligibility: Borrower or cosigner (if applicable) must have a minimum income of $30,000. Must be U.S. citizen or permanent resident, admitted to or enrolled at least half-time at any title IV degree-granting college and university when applying. Loan servicer: Granite State Management & Resources (GSM&R)
View details	4.63%+	3.70%+	Get Rates INvested review
Loan terms: 5, 10, 15 years Loan amounts: Up to 100% of school certified cost of attendance (minimum $1,001) Repayment plans: Full principal and interest, interest only, and full deferment Application fees: No application, origination, or disbursement fees Discounts: 0.25% autopay discount; 2% principal reduction upon graduation Cosigner release option: Applications accepted after 48 consecutive monthly principal and interest payments Eligibility: Indiana residents enrolled in college and U.S. residents attending an eligible Indiana school Loan servicer: American Education Services
View details	3.95%+	n/a	Get Rates INvested review
Loan terms: 10 or 15 years Loan amounts: Minimum $1,500 (public school) or $2,000 (private school). Maximum up to school’s certified cost of attendance (minus other aid received) Repayment plans: Immediate, interest-only, or deferred Application fees: No application, origination, or disbursement fees Discounts: None Cosigner release option: Cosigner release available after 48 on-time payments and meeting credit requirements Eligibility: U.S. citizen or permanent resident Loan servicer: American Education Services (AES)
View details	4.74% - 11.35%9	3.25% - 10.65%9	Get Rates Sallie Mae review
Loan terms: 5 to 15 years Loan amounts: Up to 100% of the school-certified cost of attendance Repayment plans: Make interest-only or fixed monthly amount while in school, or defer payments until six months after leaving school Application fees: No application, origination, or disbursement fees Discounts: 0.25% autopay discount Cosigner release option: Available after making 12 on-time principal and interest payments and meeting credit requirements Eligibility: U.S. Citizen or U.S. 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. Loan servicer: Sallie Mae
View details	3.82%	3.02%	Get Rates SunTrust Bank review
Loan terms: 7, 10, or 15 years Loan amounts: $1,001 - $65,000 (up to $95,000 for graduate students) Repayment plans: Immediate or make partial, interest-only or deferred payments while in school. Application fees: No application, origination, or disbursement fees Discounts: 0.25% autopay discount; 0.25% loyalty discount; other special rewards may include principal reduction at graduation, rate reduction for on-time payments, or zero interest for six months Cosigner release option: Cosigner release after 36 months of consecutive on-time payments Eligibility: U.S. citizens or permanent resident, not available to permanent residents of Iowa or Wisconsin. Union Federal Private Student Loan available to international students with an eligible cosigner who is a U.S. citizen or permanent resident Loan servicer: American Education Services (AES)
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Lowest APRs reflect autopay, loyalty, and interest-only repayment discounts where available | 1Citizens Bank Disclosures| 2,3College Ave Disclosures | 9Sallie Mae Disclosures | 6Discover Disclosures
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 September 1, 2019, the one-month LIBOR rate is 2.14%. Variable interest rates range from 3.17%-11.50% (3.17%-11.35% 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 co-signer. Fixed interest rates range from 4.40%-12.19% (4.40% - 12.04% APR) based on applicable terms, level of degree earned and presence of a co-signer. Lowest rates shown requires application with a co-signer, 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.

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

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