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One of the most important concepts affecting your student loan repayment plan is the difference between subsidized vs. unsubsidized loans. It is important when you’re seeking federal assistance or are in repayment to understand which you qualify for and what you should expect once you receive your loan.

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:

LenderRatesLoan TermKey Details 
citizen bank
Citizens Bank
Fixed: 4.99%+
Variable: 3.74%+
5, 10, and 15-year loans• Borrow up to $170k
• Broad list of eligible schools
• Discount up to 0.5%
college ave
College Ave
Fixed: 5.24%+
Variable: 3.22%+
8, 10, 12, and 15-year loans• Borrow up to 100% of your school's cost of attendance
• Multiple repayment options
• Auto pay discount of 0.25%
Variable: 3.63%+20-year loan only• Borrow up to $150k
• Limited school eligibility
• 0.30% discount for qualified borrowers
rhode island student loan authority
Fixed: 3.99%+10 and 15-year loans• Only available to Rhode Island residents and students
• Autopay discount of 0.25%
• Loan forgiveness for eligible interns
Sallie Mae
Fixed: 5.74%+
Variable: 3.00%+
5-15 years• Broad school eligibility
• Borrow up to 100% of your school's cost of attendance
• Graduated repayment period

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.

Credible is a multi-lender marketplace that allows borrowers to get personalized rates and compare student loans from vetted lenders.

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