College  |  February 16, 2022  |  Kiley Thompson

Subsidized Loans vs. Unsubsidized Loans: What’s the Difference Between these Federal Student Loans?

What you'll learn
  • The pros and cons of unsubsidized and subsidized loans
  • The difference between subsidized and unsubsidized loans
  • What the "un" in unsubsidized student loan means

There are many types of loans out there—and sometimes, you’re not sure what you’re eligible for until you receive financial aid offers from individual schools. Keep these definitions in mind from the beginning.

What’s the difference between a subsidized and unsubsidized student loan?

The difference comes down to who is paying the interest that accrues on the loan from the moment you get the money. Both loans have the same interest rate, but whether or not you’re required to pay the interest during the time from disbursement to repayment is the important part.

That’s the “un” part. The “un” will determine the amount of money you’ll end up paying later.

Need money for college?

Consider a Sallie Mae® private student loan

  • Available for online or on-campus study
  • Competitive fixed and variable rates
  • No origination fee or prepayment penalty
  • Multi-Year Advantage: Returning undergraduate students have a 96% approval rate with a cosignerfootnote 1
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What is a subsidized loan?

A subsidized loan is a type of federal student loan. With a subsidized direct loan, the bank, or the government (for Federal Direct Subsidized Loans, also known as Subsidized Stafford Loans) is paying the interest for you while you’re in school (a minimum of half time), during your post-graduation grace period, and if you need a loan deferment.

You’re effectively getting your responsibility to pay that interest back “waived” with a subsidized loan during those time periods. Once you start repayment, the government stops paying on that interest, and your repayment amount includes the original amount of the loan, and the interest, accruing from that moment.

What is an unsubsidized loan?

Another type of federal loan is an unsubsidized loan. With a federal unsubsidized loan, you are responsible for the interest from the moment the loan money is disbursed into your account. There’s no help on the interest; you’re responsible for the whole amount.

When you start paying back your unsubsidized loans, you’re paying on the original amount and the interest that accrued since the unsubsidized student loan was paid to you. This can, of course, add up to thousands of dollars more to repay over the life of the loan.

So why would anyone ever take out an unsubsidized loan?

Simply put, subsidized loan offers are based solely on need, when you apply for aid through the Free Application for Federal Student Aid (FAFSA), and they are only available to undergraduate students. Generally, you’ll find out how much you’re allowed to borrow on a subsidized loan, for a particular school, via your school’s financial aid offer. Colleges set those amounts individually. If you’re eligible for a subsidized student loan, it will be part of your offer.

On the “un” side, you do not have to demonstrate need for an unsubsidized student loan, so you can borrow more money, and use the funds to pay for a graduate degree, for example. This option will also be in your offer packet, but if you’re eligible for a subsidized loan, I recommend you take that option first.

The FAFSA is key

If you need to take out a loan to make ends meet, know that you’re not alone. College is expensive and no one expects you to have planned for all contingencies. Just be sure to file the FAFSA—it’s the key to all federal financial aid, including college scholarshipscollege grants, and your eligibility for subsidized and unsubsidized student loans.

footnote Sallie Mae does not provide, and these materials are not meant to convey, financial, tax, or legal advice. Consult your own financial advisor, tax advisor, or attorney about your specific circumstances.

footnote External links and third-party references are provided for informational purposes only. Sallie Mae cannot guarantee the accuracy of the information provided by any third parties and assumes no responsibility for any errors or omissions contained therein. Any copyrights, trademarks, and/or service marks used in these materials are the property of their respective owners.

footnote 1. Sallie Mae loans cover enrollment periods of up to 12 months. Students must apply for a new loan each school year. This approval percentage is based on students who were approved for a Sallie Mae undergraduate loan with a cosigner in the 2019/20 school year and were approved for another Sallie Mae undergraduate loan when they returned  with the same or new cosigner in 2020/21. It does not include the denied applications of students who were ultimately approved in 2020/21.