Are you wondering what the difference between a subsidized and an unsubsidized loan is? Well, worry no more as I delve into it in the subsequent paragraphs.
The difficulty some parents and students face in paying college fees means that more and more Americans are going for student loans in order to stay in school. However, when considering a student loan, it’s best you go for a federal student loan that offers low interest rates as compared to other private lenders.
But then, the kind of student loan you will qualify for depends on what your financial needs are. It may either be a Direct Subsidized Loan or Direct Unsubsidized Loans. Both of these loans are federal student loans intended to aid qualified students pay for their education. The Direct Subsidized Loans and Direct Unsubsidized Loans are offered by the U.S Department of Education (ED) and are sometimes unofficially called Stafford Loans or Direct Stafford Loans.
Now, let’s take each type of loan one after the other so you understand them better.
READ ALSO: Bank of America Car Loan Eligibility Requirements & Conditions
Direct Subsidized Loans
Direct Subsidized loans are federal student loans that is accessible to students with financial need studying an undergraduate program. With Direct Subsidized Loans, the U.S government pays the interest on your loan whiles you’re in school at least half time and still goes on to pay during your grace period i.e. first six months after graduating. The government also pays the interest on your Direct Subsidized loan when you defer payments of your loan.
Note that the amount of loan one is eligible for is solely determined by your school and depends on your financial need.
Direct Unsubsidized Loans
Direct Unsubsidized Loans are federal student loans offered by the U.S Department of Education to both undergraduate and graduate students with verifiable financial need. The amount you can borrow depends on which other aid or sponsorship you receive and also on your total estimated expenses for an academic year including tuition, accommodation, books, fees, etc.
Unlike the Direct Subsidized Loans, the government does not pay interests on Direct Unsubsidized Loans, meaning you are required to pay the interest on your loans by yourself at all times. Your interest will accumulate and be added to the principal if you fail to pay interests either whiles in school, during deferment, grace periods or forbearance.
READ ALSO: Student Loan Forgiveness Program
How to apply for a Subsidized or Unsubsidized Loan
Students or parents who wish to apply for any of these loans (Direct Subsidized and Direct Unsubsidized), you must first fill out and submit the Free Application for Federal Student Aid (FAFSA) form. The information you provide in the FAFSA form is what your college uses to determine how much student loan you will receive.
CONCLUSION
Both the Subsidized and the Unsubsidized loans are offered by the U.S Department of Education except that one (Subsidized loans) is solely accessible to ungraduated students whiles the other (Unsubsidized loans) is available to both graduate and undergraduate students.
Interests on Direct Subsidized loans are taken care of by the government at all times whereas a borrower of a Direct Unsubsidized loan is responsible to pay loan interests by themselves. Hence in summary, Direct Subsidized Loans offers somewhat better terms to aid students that Direct Unsubsidized loans.