Paying Back Subsidized and Unsubsidized Loans?

Hi, I'm a little confused on how subsidized and unsubsidized loans work! Do I have to pay both types back after I graduate? Could someone please clarify the difference between the two? Appreciate it!

Hi! It's natural to have questions about student loans. The main difference between subsidized and unsubsidized loans lies in the interest accrual and when you're required to start paying interest. Both types of federal loans do need to be repaid, but there are some key differences.

Subsidized loans are need-based loans provided by the U.S. Department of Education. The main benefit is that while you are enrolled in college at least half-time, during a grace period (usually 6 months after you graduate or drop below half-time enrollment), or during a deferment period, the federal government pays the interest on these loans. This means you won't have to pay any interest that accrues during these timeframes. Your loan principal will remain the same until you enter repayment, at which point you'll start making payments on both principal and interest.

Unsubsidized loans, on the other hand, are not need-based and are available to a broader range of students. The main difference is that interest on these loans starts accruing right away, even while you are still in college. You are responsible for all interest that accrues, even during school, grace periods, or deferment. You can choose to pay the interest while you're in school or let it accumulate. If you allow the interest to accumulate while in school, it will be capitalized (added to the loan principal), and you'll end up paying interest on top of the capitalized interest once you enter repayment.

Both types of loans have a grace period, typically 6 months after graduation or leaving school, before you need to start making repayments on the principal. You can also explore income-driven repayment plans, deferment, or forbearance options if you face financial hardship or other qualifying circumstances after graduation.

In summary, you have to pay back both subsidized and unsubsidized loans, but subsidized loans have the advantage of having the interest paid by the government while you're in college, during grace periods, or during deferment, which can help reduce the overall cost of your student loan debt.