Difference Between Subsidized and Unsubsidized Loans

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

Education has a cost, and sometimes the cost is enormous. Submitting talents without money is close to the destruction of the world.

Federally guaranteed loans are available for students to graduate with flying colors. The support offered by money for education in loans is classified into subsidized and unsubsidized loans.

The biggest difference between subsidized and unsubsidized loans is that a subsidized loan does not add interest while the student is studying. In contrast, in the case of unsubsidized loans, interest begins to accrue when the funds are disbursed.

Under financial regulations, it is well understood to complete an unsubsidized loan before repaying subsidized loans. However, standards are set for students to acquire knowledge to put them into practical actions.

Comparison table between subsidized and unsubsidized loans

Benchmark Subsidized loans Unsubsidized loans

Availability criteria Although a credit report is not required, subsidized loans have the eligibility criteria that the student be strictly an undergraduate candidate at the university, at least part-time. Students can be in both graduate and postgraduate studies.
How is the amount determined? The amount is determined based on financial need. Nor does it exceed the same. The school determines the amount of money to be used as a loan. This loan is also determined by the school after considering the cost of attendance. They also consider if there is any other financial aid received before.
Refund Procedure Interest is not added to the principal amount until studies are completed. Additionally, a 6-month grace period applies immediately after graduation for repayment to begin. The interest begins to be added to the principal amount from the beginning and is repaid by the borrower at the end of the study period.
loan limits Subsidized loans always have lower limits as they are based on exact financial need to complete education. Students can take advantage of a higher loan amount compared to subsidized loans
Eligibility Criteria Financial need must be presented to be eligible for the loan. You do not need to present any financial need for this loan.

What are subsidized loans?

Subsidized loans are federal loans offered to a student to complete their graduation. Loans are low-interest and available only to students in undergraduate programs.

Subsidized loans are not only low-interest loans but also have the advantage for the student of not repaying during their study period. In addition, a grace period of 6 months is offered for non-payment to help the student find a job.

It’s also good to understand that interest is not added to the principal amount during the study or grace period. If the loan payment is postponed as a moratorium, the interest is not added to the principal.

If an amount of $10,000 is used as a subsidized loan, it will remain the same when the repayment period begins. More importantly, the amount is deducted directly from the principal amount when the refund is made.

Subsidized loans are designed for low-income parents who want their children to study. The educational institution decides the loan amount, and the amount is always limited.

Subsidized loans can only be used if financial need is presented as an eligibility criterion. The best part is that this loan will never grow over time.

What are unsubsidized loans?

Unsubsidized loans are offered to students who want to complete their education. It is offered to graduate and postgraduate students at a lower interest rate.

Unsubsidized loans will require students to repay after graduation. There is no grace period offers for unsubsidized loans, as interest increases even during the grace period.

The interest begins to be added to the principal amount when the loan is taken. The student is expected to repay the interest and capital within the stipulated time without any deferment or non-payment.

Failure to pay interest on unsubsidized loans on time will also be added to the interest as a penalty. Interest on interest will also be added if any payments are missed.

No financial need must be presented to make use of this loan. Unsubsidized loans are easy to obtain and don’t require a lot of documentation.

This loan can be taken by anyone, even with wealthy parents. The school again decides the loan amount, but it may have higher loan limits.

Main Difference Between Subsidized and Unsubsidized Loans

  1. Although loan terms and interest rates are more or less similar for both loans, the main difference between subsidized and unsubsidized loansis the interest accrual factor. In subsidized loans, interest does not accrue until education is completed, while unsubsidized loans attract interest from the time they are borrowed.
  2. The amount that can be borrowed is less in the case of Subsidized Loans compared to its counterpart.
  3. Subsidized loans are applicable only for undergraduate students, while unsubsidized loans are offered for graduate and postgraduate students. A graduate cannot avail of a subsidized loan.
  4. Income-based repayment options work great with subsidized loans, as the interest would not have increased upon completion of graduation. In contrast, income-based repayment can support unsubsidized loan repayment but is ineffective since the interest would have been added to the principal of all expenses. Time the payment was not made.
  5. Subsidized loans are awarded strictly to students who have a statement of exceptional financial need. Unsubsidized loans do not need any financial need as a requirement.


Subsidized loans, as well as unsubsidized ones, help pay for college. It is an awareness that both loans must be paid back with interest.

It should make people think about how much to borrow and repay it to avoid accruing too much interest later. More importantly, the school has information on the total amount approved.

It is suggested to take a call on how much money is required each year and do it accordingly. Furthermore, greed will never pay off well at this juncture. 

The following is a compilation of the most used terms in this article on Subsidized and Unsubsidized Loans. This should help you remember related terms as used in this article at a later stage.

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