If a student loan is subsidized, the federal government will pay the interest on the loan during certain periods of time.
If a student loan is subsidized, it means that the federal government will pay the interest on the loan during certain periods of time. In contrast, you are responsible for paying the interest on an unsubsidized loan from day one. For this reason, it’s typically much better to have a subsidized student loan than an unsubsidized one. (Learn about the different types of federal student loans .)
What is a Subsidized Student Loan?
If you have a subsidized student loan, the government pays the interest on your loan:
- while you are still in school (at least half-time), and
- during authorized student loan deferment periods (you are in deferment if your student loan payments are postponed for a valid reason such as unemployment or economic hardship).
Difference Between Subsidized and Unsubsidized Student Loans
The benefit of a subsidized student loan is that interest doesn’t accrue (accumulate) on your loan
while the government is responsible for paying it. If you have an unsubsidized loan, interest begins to accrue and capitalize (gets added to your principal balance) immediately after you take out the loan.
This means that if you have a subsidized loan, you don’t have to make any interest payments while you are in school (or during deferment) to keep your loan balance from getting bigger. With an unsubsidized loan, your loan balance begins to increase right away unless you pay the interest as it accrues.
Types of Subsidized Student Loans
The most common types of subsidized student loans include:
- Direct Subsidized Loans
- Subsidized Federal Stafford Loans, and
- Federal Perkins Loans.
Who Is Eligible to Receive a Subsidized Student Loan?
If you have a subsidized loan, the government is essentially helping you out by paying your interest. For this reason, you must demonstrate financial need to qualify for a subsidized student loan. In contrast, you are not required to have financial need to receive an unsubsidized loan.