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Financial Aid Knowledge Base

What is the difference between subsidized and unsubsidized loans?

May 09, 2013

In short, Direct Subsidized Loans have slightly better terms to help out students with financial need.
Here’s a quick overview of Direct Subsidized Loans:

  1. Direct Subsidized Loans are available to undergraduate students with financial need.
  2. Your school determines the amount you can borrow, and the amount may not exceed your financial need.

For a subsidized loan, the U.S. Department of Education pays the interest while you’re in school at least half-time, for the first six months after you leave school (referred to as a grace period*), and during a period of deferment (a postponement of loan payments).

*Note: If you receive a Direct Subsidized Loan that is first disbursed between July 1, 2012, and July 1, 2014, you will be responsible for paying any interest that accrues during your grace period. If you choose not to pay the interest that accrues during your grace period, the interest will be added to your principal balance.

Here’s a quick overview of Direct Unsubsidized Loans:

  1. Direct Unsubsidized Loans are available to undergraduate and graduate students; there is no requirement to demonstrate financial need.
  2. Your school determines the amount you can borrow by considering the cost of attendance and other financial aid you receive.
  3. For an unsubsidized loan, you are responsible for paying the interest during all periods.
  4. If you choose not to pay the interest while you are in school and during grace periods and deferment or forbearance periods, your interest will accrue (accumulate) and be capitalized (that is, your interest will be added to the principal amount of your loan).

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