As I'm getting closer to deciding on a college, I'm trying to wrap my head around the differences between subsidized and unsubsidized student loans. I know that the interest rates are a big factor, but I'm not clear on how they differ between these types and what that means for me financially. Can someone explain in simple terms what to expect with these loans, especially when it comes to the interest that accrues? I'm eager to make a smart decision about loans since they'll likely be a part of my financial plan.
Sure, it's crucial to understand these terms so you can effectively manage your college finances. Subsidized Loans and Unsubsidized Loans are both federal student loans, but they differ mainly in their interest policies.
Starting with Subsidized Loans: they're need-based loans. The US Department of Education pays the interest on a Direct Subsidized Loan 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).
Unsubsidized Loans accumulate interest from the day they are first paid out. While you're in school, and during your grace period and any 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).
It's important to remember that if you choose not to pay the interest on your Direct Unsubsidized Loan and it's capitalized, it will increase the overall cost of your loan. If you're able, it's beneficial to pay at least the interest on these loans while in school.
CollegeVine’s Q&A seeks to offer informed perspectives on commonly asked admissions questions. Every answer is refined and validated by our team of admissions experts to ensure it resonates with trusted knowledge in the field.