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The Difference Between Subsidized and Unsubsidized Student Loans

by Amanda Hicks

We’ll help you decide whether subsidized or unsubsidized student loans are right for you.

Both subsidized and unsubsidized student loans are Direct Loans offered by the U.S. Department of Education. The type of loan and amount you can borrow each academic year is determined by your school, your dependent or independent status, and federal borrowing limits. Both loan types:
  • Offer low, fixed interest rates and flexible income-based repayment (IBR) plans — typically 10% of your discretionary income if you’re a new borrower.
  • Don’t require you to have a pre-established credit history.
  • Have annual and lifetime maximum borrowing limits.
  • Provide a grace period (typically six months) before loan repayment begins.
  • Feature qualified loan forgiveness programs. You can apply to the Pubic Service Loan Forgiveness program after making 120 qualifying payments (10 years’ worth) while working for an approved employer in the public sector. The Teacher Loan Forgiveness program can be applied to after teaching for five years in a low-income school district.
 Additionally, both subsidized and unsubsidized loans require you to:
  • Be enrolled or planning to enroll at least half-time as a student at a school that participates in the Direct Loan Program.
  • Apply by submitting the Free Application for Federal Student Aid Form (FAFSA® form) each year. Filing early will maximize your eligibility. This year and every year, you can file as early as October 1 if you plan to attend a post-secondary school in the fall of the following year. The deadline to file varies by school and state, and some require the FAFSA form to be submitted by March.
  • Maintain satisfactory academic progress.
  • Meet specific requirements regarding: education, citizenship, residency, or immigration status; and Social Security documentation.
  • Be registered with Selective Service if you are a male aged 18 to 25.

How do Subsidized and Unsubsidized Direct Loans differ?

Subsidized student loans are generally more advantageous for the borrower. The big difference is interest. With these loans, the U.S. Department of Education pays the interest on your loan while you’re enrolled in school at least half-time, during your grace period, and during any deferment (postponement of payment) period. So interest does not begin to accrue until payments begin. To qualify, you must:
  • Be an undergraduate
  • Demonstrate financial need
  • Not be enrolled for more than 150% of the published length of your program. For example, if you are enrolled in a four-year program, you can no longer apply for subsidized student loans after six years (4 x 1.5 = 6). Likewise, if your program takes two years to complete, you can no longer apply after three years
 Unsubsidized student loans are easier to obtain and have a higher maximum borrowing limits, but the borrower pays the interest throughout the life of the loan. Interest starts accruing on day one of the loan distribution and continues until the loan is repaid in full, including during any grace or deferment periods. To qualify, you:
  • Can be an undergraduate, graduate, or professional degree student
  • Do not have to demonstrate financial need
Direct PLUS Loans are also Direct Loans from the U.S. Department of Education that are offered to qualifying graduate students, professional degree students, or parents (with a good credit history) of dependent undergraduates. They can be used to cover expenses remaining beyond what Subsidized and Unsubsidized Direct Loans finance. The maximum amount that can be borrowed by PLUS Loans is equal to the student’s annual cost of attendance minus any other financial aid received. 

Another borrowing option

Clearview offers a student line of credit. The interest rate on a line of credit is typically lower than a private loan. Get answers to many of your questions in our FAQs.

How COVID-19 impacts things

Due to the coronavirus pandemic, as of March 20, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Under the extension of this act, the following relief measures are in effect through December 31, 2020: suspension of loan payments, ceased collections of defaulted loans, and 0% interest rates. Read the most recent updates regarding school financing during the pandemic, including work-study programs and campus closures. You can also find several helpful articles on our Planning and Funding College during COVID-19 page.
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