Difference Between Subsidized and Unsubsidized Loans

Education is much-needed wisdom for anyone. Proper education is required for all to make this world a better place to live in.

Education comes with the cost and the cost at times is huge. Subduing talents for no money is close to the destruction of the world.

There are federally guaranteed loans available for students to ensure they graduate from school with flying colors. The support which the money offers for education as loans are categorized into subsidized and unsubsidized loans.

Subsidized vs Unsubsidized Loans

The difference between subsidized and unsubsidized loans is a subsidized loan does not add up interest while the student is studying whereas, in the case of unsubsidized loans, the interest starts adding up from the time the funds are disbursed.

Subsidized vs Unsubsidized Loans

It is well understood from the financial norms to complete an unsubsidized loan first before repaying the subsidized loans. Nevertheless, norms are set for students to acquire knowledge to put that into worthwhile actions.


Comparison Table

Parameter of ComparisonSubsidized LoansUnsubsidized Loans
Availability CriteriaThough a credit report not needed, the subsidized loans have the eligibility criteria of the student strictly being an undergraduate candidate of the college, at least part-time.The students can be in both graduate or post-graduate studies.
How is the amount determinedThe amount is determined based on financial need. It does not exceed the same too. The school determines the amount of money to be availed as loan.This loan also is determined by the school after considering the cost of attendance. They also consider if there are any other financial help received earlier.
Repayment ProcedureThe interest does not add to the principal amount until the studies are completed. Further, a grace period of 6 months is applied immediately after graduation for the repayment to begin.The interest starts adding to the principal amount from the beginning and it is repaid by the borrower once the term of studies is completed.
Loan LimitsSubsidized loans are always lower in limits as it is based on the exact financial need for the education to be completed.Students can avail higher loan amount when compared to subsidized loans
Eligibility CriteriaFinancial need must be submitted to be eligible for the loanThere is no need to submit any financial need for this loan


What are Subsidized Loans?

Subsidized loans are federal loans offered to a student to complete his/her graduation. The loans are of low interest and available only for students in undergraduate programs.

Subsidized loans are not only low-interest loans but also has an advantage to the student of not making the repayment during his study period. Moreover, a grace period of 6 months is offered for non-payment, to support the student to find a job.

It is also good to be understood that the interest does not add up to the principal amount during the study period as well as the grace period. If the loan payment is postponed as deferment, even then the interest is not added to the principal.

If an amount of $10000 is availed as a subsidized loan, it remains the same when the repayment period starts. More importantly, when the repayment is made, the amount gets directly deducted to the principal amount.

Subsidized loans are designed for lower-income parents who want their wards to study. The loan amount is decided by the school and the amount is always limited.

Subsidized loans can be availed only by submitting the financial need as an eligibility criterion. The best part is, this loan will never get bigger over time.

subsidized loans

What are Unsubsidized Loans?

Unsubsidized loans are offered to students who want to complete his/her education. It is offered to both graduates as well as postgraduate students at a lower interest rate.

Unsubsidized loans will require the students to pay back after graduation. There is no grace period offers for unsubsidized loans, as the interest keeps adding even during the grace period.

The interest starts adding to the principal amount from the time the loan is taken. It is expected of the student to pay back the interest as well as the principal within the stipulated time without any deferment or non-payment.

The non-payment of unsubsidized loan interests on time will also add up to the interest as a penalty. Interest in interests shall also add up if any payment is missed.

No financial need is to be submitted to avail this loan. Unsubsidized loans are easy to avail and not much documentation is needed too.

This loan can be taken by any, even with wealthy parents. Here again, the loan amount is decided by the school but can have higher limits of loans.

unsubsidized loans

Main Differences Between Subsidized and Unsubsidized Loans

  1. Although the loan terms and interest rates are more or less similar for both the loans, the main difference between Subsidized and Unsubsidized loans is the interest accruing factor. In subsidized loans, the interest does not accrue till the education is completed whereas the unsubsidized loans attract interest from the time it is borrowed.
  2. The amount that can be borrowed is lower in the case of Subsidized loans when compared to its opposite counterpart.
  3. Subsidized loans are applicable only for undergraduate students whereas unsubsidized loans are offered for both graduates as well as postgraduate students. Mainly, a graduate cannot avail a subsidized loan.
  4. Income-based repayment options work wonders with subsidized loans as the interest would not have grown higher while completing the graduation, whereas income-based repayment can be supportive of unsubsidized loan repayment but not effective as the interest would have added to the principal for all the time payment was not done.
  5. Subsidized loans are strictly given to students who have an exceptional financial need statement. Unsubsidized loans do not need any financial need as a requirement.


  1. https://www.jstor.org/stable/1935927
  2. https://eric.ed.gov/?id=ED451759
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