To understand what the differences are between a subsidized vs unsubsidized loan, it important to know what the word subsidized or subsidy means. According to Webster dictionary, a subsidy is a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive. How this translates to student loans is that generally speaking, subsidized loans are in some portion paid by the government, and unsubsidized loans are not.
What is a Subsidized Student Loan?
A subsidized federal student loan is a loan where the US Government helps subsidize or pay for a portion of the loan. For federal student loans, this equates to the government paying part of the interest on the loan. This subsidy of interest does not last throughout the full term of the loan, but is provided under the following circumstances;
- While the borrower is still attending school for at least half-time enrollment
- For the first six months after graduating or leaving school
- During deferment periods
*for direct subsidized loans obtained between July 1st, 2013 and July 1, 2014 there is no interest subsidy during your grace period.
Subsidized student loans are available only to undergraduate students who are able to display a financial need. The school which you are attending determines the amount you are able to borrow, and that amount cannot exceed your financial needs. To apply for a subsidized loan, you would need to complete a FAFSA form, and your school will then determine eligibility. If you are obtaining federal student loans to attend school, it is best to always take subsidized loans first up until you’ve borrowed the amount needed and permitted prior to taking out any unsubsidized loans. The amount of interest that the government will pay over the course of the loan can amount to many thousands of dollars.
Subsidized Maximum Eligibility Period
The period in which you may qualify for a subsidized loan is limited. Currently, eligibility is 150% of the time it would take to graduate in your program. This means that in a normal 4-year program, you would be eligible for subsidized loans for up to a maximum of 6 years. This is also subject to change if your school changes the program length for which you are studying. For 2-year associate degrees, the maximum eligibility period would be 3 years. If you receive a subsidized loan for a period of time which is shorter than a full academic year, your maximum eligibility period will be reduced accordingly. If you are enrolled less than full-time, that period would also be reduced accordingly.
If you have received subsidized loans for the maximum eligibility period, the interest on your loans will no longer be paid by the US Government, and you would become responsible.
An unsubsidized federal student loan does not offer the same interest subsidy as found in subsidized loans. Unsubsidized loans are easier to obtain because they do not require that you demonstrate a financial need. Unlike subsidized loans, unsubsidized loans are available to both undergraduate and graduate students. Your school would determine the amount you can borrow, and you would be responsible for paying the interest on the loan at all times.
Unsubsidized Maximum Eligibility Period
Unsubsidized loans do not have a maximum eligibility period, unlike subsidized loans.
Subsidized vs Unsubsidized Maximum Borrowing Limits Per Year
The amounts you can borrow as a subsidized loan are limited. There are both annual limits, and aggregate limits. The student can borrow up to the annual limit each academic year, but cannot exceed the aggregate limit.
|Subsidized (dependent)||Unsubidized (dependent)||Subsidized (independent)||Unsubidized (independent)|
|Third Year & Beyond||$5,500||$7,500||$5,500||$12,500|
|Graduate & Professional||None||$20,500||None||$20,500|
|Sub & Unsub Aggregate Limits Undergrad||$23,000||$31,000 (includes both sub and unsub)||$23,000||$57,500(includes both sub and unsub)|
*for graduate and professional student, the aggregate limit is $138,500, of which no more than $65,000 can be subsidized.
Origination Fees for Subsidized vs Unsubsidized Loans
Both subsidized and unsubsidized student loans have an origination fee, which is an upfront fee charged for processing your loan application and for disbursement of the student loans. This origination fee would apply each time a new loan is taken out and is calculated as a percentage of the loan. Origination fees can change annually, here are the most recent.
|Loan from October 1st, 2016 – October 1, 2017||1.069%|
|Loan From October 1st, 2017 – October 1st, 2018||1.066%|
Qualifying For a Subsidized vs Unsubsidized Student Loan
To qualify for a subsidized or unsubsidized loan, you must be enrolled at a school as at least a half-time student, and that school must participate in the federal loan programs. You must also be enrolled in a program that leads to a degree. For subsidized loans, you must be an undergraduate and be able to display financial need. Graduate students can not qualify for subsidized loans. For unsubsidized loans, you do not need to show a financial hardship and can be either an undergraduate or graduate student.
Do you have to pay a subsidized loan back?
Yes. In a subsidized loan the government will pay part of the interest, but the borrower is still responsible to pay back the loan.
What is the difference between subsidized and unsubsidized student loans?
In a subsidized student loan, the government will pay part of the interest on the loan during certain periods. On an unsubsidized loan, the borrower is responsible for all interest on the loans.
Which is better subsidized or unsubsidized?
Subsidized loans are generally better because the US Government will pay some of the interest on the loan.
What is the interest rate on subsidized and unsubsidized student loans?
|Loan Type||2017-18 Interest Rate||2016-17 Interest Rate||2015-16 Interest Rate|
|Direct Subsidized Loans (Undergraduate)||0.0445||0.0376||0.0429|
|Direct Unsubsidized Loans (Undergraduate)||0.0445||0.0376||0.0429|
|Direct Unsubsidized Loans (Graduate)||0.0600||0.0531||0.0584|
|Direct PLUS Loans (Graduate and Parents)||0.0700||0.0631||0.0684|
Compare the Best Student Loan Refinance Rates
Here are our top student loan refinance picks for 2019
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.