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Difference Between Subsidized and Unsubsidized Federal Loans

The following article states the difference between subsidized and unsubsidized Federal loans. These loans which are primarily, student loans, are lent as financial aid by the government. To know more about the differences in subsidized loans and ones which are not subsidized, read on…

The difference between subsidized and unsubsidized loans is same as the difference between subsidized and unsubsidized federal loans. The following paragraphs provide some insights into the subsidized and unsubsidized Federal loans along with a brief explanation on 'subsidized loan vs unsubsidized loan'. To be honest, the difference is not much, the interest rate is all that differs.

Federal Loans and Subsidy in the United States

The concept of Federal loans basically, implies the loans that are given to people as financial aid. The most common loan that is given by the Federal government is a student loan. These loans are given so that students, can fulfill their academic ambitions, without having to face the hurdle of sky high cost of eduction. The Federal student loans are arranged for through U.S. Department of Education and almost all students become eligible for these loans. There are two channels through which the federal loans for students are disbursed to the students, namely, they are given to students directly or they are given to parents. Stafford, Perkins, and Direct student loans are given to students who are financially challenged, and also any other student irrespective of their financial condition. The amount that is disbursed depends upon the year that the students are attending and their financial conditions. Now the repayment schedule and the interest for subsidized and unsubsidized loans differ from one another. Subsidized student loans are usually given to the students who are not able to afford the educational costs.

It must be noted that other loans, that is the ones that are not student loans can also be subsidized and unsubsidized loans. Here's the difference in the two…

What is the Difference Between Subsidized and Unsubsidized Federal Loans?

As mentioned above the difference is found in the repayment schedule and the interest payment rates and procedures. Here's the basic definitions:
  • Subsidized Loan: Any subsidized loan that is provided by the federal government, indicates that the government would bear the cost of the interest rate for a certain time period. This process is known as subsidizing the interest rates. The basic rule for all federal loans (especially for students) is that the government undertakes the cost of the interest till the student passes out of the educational system. Following this, a small grace period is provided, after which the student is supposed to pay off the installments plus the interest on installments and the interest that had been subsidized by the government. The process of repaying after the course work is finished, is often referred to as deferment of the loan.
  • Unsubsidized Loans: Unsubsidized loans of course do not have the provision where the interest is taken by the government. Here the interest payment starts as soon as the loan is sanctioned or as soon as the prescribed time period starts off. Installations start after the student graduates. Most of private loans are unsubsidized. There are some federal loans such as PLUS, Stafford and Perkins, which are also given out as unsubsidized loans.
The amount of the loan that is lent out by the government also depends upon the application of the subsidiary. For example, freshmen who qualify for the subsidized loan get $3,500 annually where as dependent freshmen, get $2,000, where as independent independent freshmen get $6,000. Eligibility and disbursement is bound to differ from loan to loan. However almost every student is eligible for some or the other financial aid. To know more about subsidized vs unsubsidized loans, you may refer to difference between subsidized and unsubsidized loans.

The best way to manage both subsidized and unsubsidized federal loans is to accumulate and save the amount as soon as the interest accrues. In case of unsubsidized loans, pay off the same as soon as the amount accrues or becomes payable. I hope that the difference between subsidized and unsubsidized federal loans is resourceful. Good luck.

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