Subsidized Loan

The rising cost of tuition is causing many college students to borrow loans to pay for their college education.  In order to apply for loans, students have to complete the FAFSA (Free Application for Federal Student Aid).

After students complete their FAFSA, they will likely either qualify for a subsidized loan or an unsubsidized loan.  It is important that you understand the differences between the two because it will affect your interest rate and repayment options.  In this post, we’re going to specifically focus on the subsidized loan.

Subsidized Loan vs. Unsubsidized Loan: What’s the Difference?

Students who qualify for a subsidized loan receive money to help them pay for college related expenses.  The student’s financial need determines the amount of his or her subsidized loan.  The major difference between a subsidized loan and an unsubsidized loan is interest and payment terms.  A subsidized loan does not make the student pay interest while they are enrolled in college.  Instead, the federal government will take care of the interest while the student is in school.  This is why they call it a “subsidized loan,” because the government is subsidizing the interest for the duration of the student’s college career.

Also, there is a grace period for students after graduation.  The student will not have to begin paying their subsidized loan until 6 months after graduation.  Some students are even able to defer their loans for longer; however they usually will have to pay interest.

Another major difference between a subsidized loan and an unsubsidized loan is the amount of money a student is able to borrow each year.  As mentioned earlier, the amount is based on the student’s financial need, but there may also be borrowing limits on a subsidized loan.  The borrowing limits are typically much lower on a subsidized loan, than on an unsubsidized loan.

Common Subsidized Loans

Some common subsidized loans are the Subsidized Stafford Loan and the Perkins Loan.  Read my post “Stafford Student Loans” to learn more about Stafford loans.  Perkins loans are a campus-based loan program, with the actual school acting as the lender.  The school uses a limited amount of fund provided by the federal government to offer Perkins Loans.  The Perkins loan is also a subsidized loan, with the interest being paid by the federal government while the student is enrolled in school.  The amount of money that a student can receive in Perkin loans is determined by the college or university’s financial aid office.  The program limits are $5,500 per year for undergraduate students and $8,000 per year for graduate students.

Generally, a student must be enrolled in college on a part-time basis at a minimum to receive either a subsidized loan or unsubsidized loan.  If the student feels that he or she needs more money in addition to the subsidized loan, he or she can always turn to an unsubsidized loan.  If your borrowing needs still aren’t met by these federal programs, there are also a variety of grants, scholarships, and private loans available.

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Lauren Anderson is a certified school counselor who's passionate about helping students all over the world successfully transition from high school to college! After spending 6 years as a business professional, she obtained her Master’s degree in School Counseling and now spends her spare time helping students.

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