What's the difference between subsidized and unsubsidized loans?
These loans can be either "subsidized" ( also sometimes called subsidized Stafford loans or direct
subsidized loans), which means the federal government pays the interest during certain periods, or
"unsubsidized" (unsubsidized Stafford loans or direct unsubsidized loans).
Subsidized Stafford Loans are awarded based on financial need. They are interest-free until you begin
repayment, which begins six months after you graduate or drop your enrollment to below half-time. You will
also not be charged interest during periods of deferment. During these times, the federal government
“subsidizes,” or pays, the interest.
Unsubsidized loans are not awarded based on financial need; any eligible student can take out Unsubsidized
Stafford Loans. For these loans, interest begins to accrue immediately, and students are responsible for
paying the interest, even while enrolled.
With unsubsidized Stafford loans the accrued interest is added to the loan balance, increasing the total
amount and, ultimately, the cost of the loan. Most students will not start making these payments until after
Both subsidized and unsubsidized Stafford loans require the completion of the FAFSA.
To receive a subsidized Stafford loan, you must be able to demonstrate financial need.
Direct subsidized loans are only available to undergraduates with demonstrated financial need, but
undergraduate and graduate students can take out direct unsubsidized loans because for these, financial need
is not a factor.
All students are eligible for the unsubsidized Stafford loan regardless of financial need.
Direct Subsidized loans have more favorable terms to help students with financial need,
- Direct Subsidized Loans are available to undergraduate students who have financial
- The student’s school determines the amount they can borrow, and that amount cannot
- The U.S. Department of Education pays the interest on a Direct Subsidized Loan:
- while you are in school at least half-time;for the first six months after you leave
(known as a
grace period); and during a period of deferment (a postponement of loan payments).
Direct Unsubsidized Loans are available to both undergraduate and graduate students,
- There is no requirement to demonstrate financial need.
- The student’s school determines the amount the student can borrow based on the student’s
attendance and other financial aid he or she receives.
- The student is responsible for paying interest on a Direct Unsubsidized Loan during all
- If the student decides not to pay the interest while he or she is in school and during
deferment or forbearance periods, his or her interest will accumulate and be added to
amount of your loan.