Subsidized and unsubsidized college loans are “government or federal” student loans. In order to qualify for one of these loans, a student and his parent(s) would have to complete the FAFSA (Free Application for Student Aid). Most universities require the FAFSA before they consider a student for one or both types of student loans.

Main Differences Between a Subsidized vs Unsubsidized Loan

1. Amount Available

A federal subsidized loan allows for:

  • $3500 loan the first year
  • $4500 loan the second year
  • $5500 loan the third year
  • $5500 loan the fourth year
  • A total 4-year loan of $19,000

A federal unsubsidized loan allows for:

  • $2000 per year 
  • A total of $8000 for four years
  • Qualifying for both loans amounts to $27,000 of available federal student loans

2. Interest Accrual

subsidized and unsubsidized college loans

A federal subsidized loan means no interest is added to the loan until the payments begin. Payments are to begin 6 months following graduation from college or 6 months after you are not enrolled as a full time student. This amounts to an interest-free loan for the time you or your student is in school.

A federal unsubsidized loan means that the interest that you normally would be paying is added to the amount of loan. In other words, if you borrowed the $8000 available over the four years of school, the amount of loan would be greater than $8000, due to the accrued interest. Payments, like the federal direct subsidized loans, also start 6 months following graduation, or when you are no longer enrolled as a fulltime student.

The aid award letter from the college or university you plan on attending will inform you if you qualify for a federal subsidized or unsubsidized student loan. Realize that loans are considered a form of aid even though you have to pay them back. Obviously, subsidized loans are the best loans since they are free of interest accrual until the time you have to start paying them back. Both federal loans typically carry a lower interest rate than PLUS loans (Parent Loan for Undergrad Students) and private or university loans. If you need to borrow money and are trying to find the best terms possible, the interest rates on these federal loans are usually the lowest available.

3. Payment Length

When it is time to pay your federal student subsidized or unsubsidized loans, you can structure the payback over a ten-year period or 120 months.

Depending upon your financial circumstances among other items, there are opportunities to get payments reduced (like income-based repayment options). Other options potentially available could be forgiveness of loans after a considerable amount of time and the circumstances involved. There is also a last-ditch option called forbearance that would give you 12 months of no payments. But of course, the interest not paid during that time is added to the principal of the loan. In forbearance, however, loans continue to accrue interest meaning your loan balance is going to be greater 12 months later. 

Here is one thing to seriously consider. Right now there are 31 million people with student loans without the possession of a college degree. Typically, college degrees have a tremendous impact on one’s earning capacity. So, if you’re going to pursue college, make sure you finish, thus giving you a larger income to satisfy your student debt.

Also, student debt is having a tremendous impact on our economy. Debt payments reduce the income available for graduates and the 31 million non-graduates to buy cars, homes, or start families.

With that being said, make sure you are going to college for the right reason, not just to “get the college experience”, but to get an education that will have a positive impact on your contribution to society not to mention your income. Someone with a college degree generally will earn about $1,000,000 more in the lifetime of their employment over a person with just a high school diploma.

Managing Student Loans – Options to Consider

subsidized and unsubsidized college loans

Managing your student loans is an important consideration as you consider the following options;

  • Subsidized vs unsubsidized loans
  • Plus loans (parent loan for undergrad students)
  • Private loans (loans from private institutions such as SoFi or Discover)
  • University loans (loans from the institution you attend)

Most students end up with some student loan debt. That’s why it makes a lot of sense to do your due diligence to understand your options. These include the fees, interest rate, repayment terms, and the future repayment options should you run into trouble.

Most of the entities that service your student loans are capable of helping you understand your options once you have secured a loan or loans to pay for your college education. Having a lot of support from service centers can deliver you the information necessary to make decisions on how to manage your debt. Also, before you sign the dotted line to secure student debt do some shopping around.


One of the items that you should ask about is the fee that could be charged to engage your loan. This is usually taken from the amount you borrow on the front end. So when you get the actual cash from the loan it is typically less the amount of the front-end fee. This is part of the cost of your loan. So the higher the fee the more expensive your loan becomes.


Besides the fee that you pay to start a student loan, you also have the amount of the interest that is charged for the use of the money that you borrow. It goes without saying that the lower the interest rate the lower the cost of the money.

So if I were looking to get a student loan today, I would check the amount of the loan that is available to me. I would also compare what the up-front fee is. The biggest item to check is the interest rate that the company would charge you. Finally, it is also important to understand what payback options are available to you once payments would start.

Good luck, not only in getting an education but in securing the best possible terms on your student loan.

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