There are two main types of Stafford Loans: subsidized and unsubsidized. The difference between the two is whether or not the government pays the interest on the loan while you are in school. Here’s a breakdown of each loan type, so you can decide which one is right for you.
What is a Subsidized Stafford Loan?
Subsidized Stafford Loans are need-based loans available to undergraduate and graduate students. The U.S. Department of Education pays the interest while the student is in school, during their grace period, and during any deferment periods.
- Subsidized Stafford Loans first became available in July 1, 1993. Subsidized Stafford Loans have lower interest rates than unsubsidized Stafford Loans and the borrower is not responsible for paying the interest while in school.
- To be eligible for a Subsidized Stafford Loan, the borrower must demonstrate financial need as determined by the FAFSA (Free Application for Federal Student Aid). Subsidized Stafford Loans are awarded on a first-come, first-served basis to eligible students until funding is no longer available for the academic year.
- Students who do not receive a Subsidized Stafford Loan may be eligible for an unsubsidized Stafford Loan. Repayment of Subsidized Stafford Loans begins six months after the student graduates, withdraws from school, or drops below half-time enrollment.
- Subsidized Stafford Loans are subject to origination fees as well as annual and lifetime aggregate limits. For more information about Subsidized Stafford Loans, contact the Financial Aid Office at your school.
What is Unsubsidized Stafford Loan?
Unsubsidized Stafford Loans are need-based loans offered to undergraduate and graduate students. The US Department of Education is the main lender, but private lenders also offer these loans. Students can borrow up to the cost of attendance minus any other financial aid they receive. Unsubsidized Stafford Loans have a fixed interest rate and a repayment term of 10 years. Interest accrues on these loans from the time they are first disbursed. However, students can choose to defer payment until after graduation. Unsubsidized Stafford Loans are an excellent option for students who need additional financial aid to cover the cost of attendance.
Difference between Subsidized and Unsubsidized Stafford Loan
Subsidized and unsubsidized Stafford Loans are two types of federal student loans available to undergraduate and graduate students. Both Subsidized and Unsubsidized Stafford Loans are guaranteed by the federal government and have low, fixed interest rates.
- The main difference between Subsidized and Unsubsidized Stafford Loans is that Subsidized Stafford Loans are need-based, while Unsubsidized Stafford Loans are not.
- Subsidized Stafford Loans also have slightly lower interest rates than Unsubsidized Stafford Loans.
- Another difference between Subsidized and Unsubsidized Stafford Loans is that Subsidized Stafford Loans do not accrue interest while the borrower is in school or during grace periods and deferment periods, while Unsubsidized Stafford Loans do.
Because of this, the total amount repaid on a Subsidized Stafford Loan will be less than the total amount repaid on an Unsubsidized Stafford Loan.
Conclusion
The subsidized Stafford loan is a great option for students who need financial assistance to pay for college. However, the unsubsidized Stafford loan should also be considered because there are some benefits that make it more advantageous than the subsidized loan. Make sure you understand the difference between these two types of loans before making a decision about which one is right for you.
