What Is the Difference Between Subsidized vs Unsubsidized Loan? The most significant difference between subsidized and unsubsidized student loans lies in the government’s role in paying your interest while in school or during specific deferment periods.
With subsidized loans, the government pays the interest while you are in school or during specific deferment periods, and with an unsubsidized loan, you pay the interest as it accrues. While both types of student loans are available to borrowers on financial aid, only some people qualify for them.
Types of Financial Aid
The two main types of financial aid available for college students are scholarships and loans. Scholarships are considered gift aid because they do not have to be paid back. Federal student loans, on the other hand, must be repaid-with interest.
However, all federal student loans have fixed rates and flexible repayment terms. This means that there are types of loans available that can more easily match the needs of individual students, including subsidized and unsubsidized loan rates.

Who qualifies for a subsidized loan?
The government offers subsidized loans to students who demonstrate financial need, as determined by FAFSA (Free Application for Federal Student Aid).
They’re an excellent option for students who may have trouble paying back a large loan. For example, if you borrow $10,000 at 6.8% interest and your first-year income is $25,000, you’ll pay $103 in interest at the end of your first year.
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However, if your income exceeds your school’s calculated financial need, you won’t qualify for subsidized loans. In that case, you may be better off with an unsubsidized loan—even though it will cost you more each month.
How do you qualify for an unsubsidized loan?
Qualifying for an unsubsidized loan means you do not qualify for any federal or state grants or other financial aid. Making you responsible for paying tuition upfront. However, filling out and filing your FAFSA as soon as possible is still a good idea since it will reduce your monthly payment when you take out student loans.
If you plan on attending school part-time but at least half-time, you can apply for an unsubsidized loan once your school has verified that information with a lender. But if your status changes to part-time during that first year, some lenders may still allow you to revise and change your terms accordingly.
How Much Do You Qualify For?
Knowing how much you qualify for is crucial when making any financial decision, from getting a car loan to buying a house. Because student loans are federally backed and easy to obtain, many students take what they’re offered without questioning their options.
But before signing on with one lender, make sure you know whether you qualify for subsidized or unsubsidized loan rates. This will help ensure that your monthly payments are affordable—and that you’re saving as much money as possible over time.

Understanding the Difference Between Subsidized and Unsubsidized Loans
Subsidized and unsubsidized student loans are the two main types available to students. In both cases, borrowers can apply for various repayment plans determining how quickly they repay their debt. But in terms of interest rates, there is an essential difference between them.
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When you get a subsidized loan, your loan interest is paid for by an outside entity. With an unsubsidized loan, you’re responsible for paying any loan interest accrued during school. This can be a big deal when it comes time to pay off your loans and has a significant impact on which type you should take out if you’re in college or considering student loans as a way to fund your education costs…
Subsidized vs. Unsubsidized Student Loan Interest Rates: Let’s say you were approved for $20,000 in federal Stafford loans. If you had taken out an unsubsidized loan, your rate would have been 6.8% fixed. However, since you took out a subsidized loan, your rate was 3.4% fixed—almost half of what it would have been with an unsubsidized loan!
Rules, Requirements & Eligibility for Subsidized Loan
Undergraduate students are eligible for subsidized student loans as long as they haven’t already completed more than six years of higher education. The government will pay interest on these loans until you leave school, graduate, or drop below half-time enrollment.
After that, it’s up to you to pay your share of the interest. Your family must make less than $50,000 a year to get subsidized student loans. If you have more family members in college, you can adjust your income accordingly and still qualify for subsidized student loans.
Graduate students aren’t eligible for subsidized student loans unless they have children and make less than $55,000 a year. Plus, both undergraduate and graduate students have an annual cap on how much money they can borrow from subsidized student loans. In 2014–2015, undergraduate students were capped at $5,500 per year, and graduate students were capped at $8,500 per year.
In 2015–2016, those caps rose to $6,500 for undergraduates and $9,500 for graduates. Eligibility changes based on your field of study too. Specifically, whether you’re studying medicine or law, be sure to check with your financial aid office before assuming you won’t qualify. When filling out federal financial aid forms (FAFSA
Rules, Requirements & Eligibility for Unsubsidized Loans
To qualify for unsubsidized student loans, you must:
- Be a U.S. citizen or permanent resident.
- Be enrolled at least half-time (defined as six credits per semester for undergraduates).
- Not be in default on any existing federal education loans.
One important thing to note about unsubsidized loans is that you must pay interest on them from day one. The government doesn’t pay interest on your behalf while you’re still in school. This may sound like a bad deal, but it can work in your favor if you need to borrow additional funds after graduation.