Understanding Subsidized Student Loans

There are two main types of student loans that you can avail while you are in college, the subsidized student loans and the unsubsidized student loans. While it is most likely that you will end up with the both of them at the end after you graduate, it is useful to know the difference between the two due to the payment schemes that are incorporated within them. That being said, the main difference between subsidized student loans and unsubsidized student loans is how the interest accumulates. In short, the government or the school subsidizes the interest while you are still studying.



The main characteristics of subsidized student loans is that they have a low, fixed interest rate, you don't have to pay for it while you are still studying or even when in deferment, and there is no interest while you are still at school or in deferment. Also, the qualification for it is not based on your credit rating but rather on your financial standing. You have to pay your loans and interest after your grace period of around 6 months after graduation or leaving school.



On the other hand the unsubsidized student loans, like subsidized student loans, allows you to pay the principal of the loan after the grace period. But you do however have to pay the interest of the loan even when you are still studying since it is not subsidized by the government or the school. It is also based on the credit rating of the lender so those who have excellent credit history will avail a lower interest rate and smaller loan origination fee.



Another major difference between a subsidized student loans and unsubsidized student loans is the amount of money that you are allowed to borrow per year. Subsidized student loans are more strict and have a tight cap on the maximum amount. Meanwhile, unsubsidized student loans also has a cap but it is quite higher than its subsidized counterpart, at around $5,000 more per year.



Some of the most common subsidized student loans in the United States is the Subsidized Stafford Loan and the Perkins Loan. Because of their difference, it is advisable that you only get unsubsidized student loans after reaching the cap on the subsidized student loans.