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There are many types of loans out there—and sometimes, you’re not sure what you’re eligible for until you receive financial aid offers from individual schools. Keep these definitions in mind from the beginning. What’s the difference between a subsidized and unsubsidized student loan?The difference comes down to who is paying the interest that accrues on the loan from the moment you get the money. Both loans have the same interest rate, but whether or not you’re required to pay the interest during the time from disbursement to repayment is the important part. That’s the “un” part. The “un” will determine the amount of money you’ll end up paying later. What is a subsidized loan?A subsidized loan is a type of federal student loan. With a subsidized direct loan, the bank, or the government (for Federal Direct Subsidized Loans, also known as Subsidized Stafford Loans) is paying the interest for you while you’re in school (a minimum of half time), during your post-graduation grace period, and if you need a loan deferment. You’re effectively getting your responsibility to pay that interest back “waived” with a subsidized loan during those time periods. Once you start repayment, the government stops paying on that interest, and your repayment amount includes the original amount of the loan, and the interest, accruing from that moment. What is an unsubsidized loan?Another type of federal loan is an unsubsidized loan. With a federal unsubsidized loan, you are responsible for the interest from the moment the loan money is disbursed into your account. There’s no help on the interest; you’re responsible for the whole amount. When you start paying back your unsubsidized loans, you’re paying on the original amount and the interest that accrued since the unsubsidized student loan was paid to you. This can, of course, add up to thousands of dollars more to repay over the life of the loan. So why would anyone ever take out an unsubsidized loan?Simply put, subsidized loan offers are based solely on need, when you apply for aid through the Free Application for Federal Student Aid (FAFSA), and they are only available to undergraduate students. Generally, you’ll find out how much you’re allowed to borrow on a subsidized loan, for a particular school, via your school’s financial aid offer. Colleges set those amounts individually. If you’re eligible for a subsidized student loan, it will be part of your offer. On the “un” side, you do not have to demonstrate need for an unsubsidized student loan, so you can borrow more money, and use the funds to pay for a graduate degree, for example. This option will also be in your offer packet, but if you’re eligible for a subsidized loan, I recommend you take that option first. The FAFSA is keyIf you need to take out a loan to make ends meet, know that you’re not alone. College is expensive and no one expects you to have planned for all contingencies. Just be sure to file the FAFSA—it’s the key to all federal financial aid, including college scholarships, college grants, and your eligibility for subsidized and unsubsidized student loans.
Subsidized and unsubsidized loans are federal student loans for eligible students to help cover the cost of higher education. The U.S. Department of Education offers eligible students at participating schools Direct Subsidized Loans and Direct Unsubsidized Loans. (Some people refer to these loans as Stafford Loans or Direct Stafford Loans.) What’s the difference between Direct Subsidized Loans and Direct Unsubsidized Loans?
For information regarding current interest rates and origination fees, please visit https://studentaid.gov/understand-aid/types/loans/interest-rates Eligibility Requirements
Entrance Counseling
Entrance Counseling is a mandatory, online session for all first-time federal loan borrowers. The purpose of Entrance Counselling is to inform the student borrower of their rights and responsibilities, as well to help educate the student on topics such as interest rates, responsible borrowing, repayment plans, and avoiding default. Students can check the status of their Entrance Counseling in their MyOCC account. Master Promissory Note
The Master Promissory Note (MPN) is a legal document in which you promise to repay your loan(s) and any accrued interest and fees. It also explains the terms and conditions of your loan(s). By signing the MPN you are agreeing to the terms of your loan(s). Students can check the status of their Master Promissory Note in their MyOCC account.
Disbursement of Loan FundsLoans are generally awarded for the full academic year and disbursed in two equal installments near the beginning of the Fall and Spring semesters. Funds are disbursed directly to the college and are applied to the student’s account to cover any outstanding charges such as tuition, fees, room and board. Any loan funds in excess of a student’s charges will be refunded to the student via paper check or direct deposit. Loan ServicerOnce your loan has been originated, the Department of Education will assign your loan to a federal servicer. The servicer assigned to your loan(s) will send you correspondence including disclosure statements that contain loan amounts, interest rates and disbursement dates, repayment information and options regarding loan consolidation. Always be sure to notify your loan servicer with any changes to your personal information such as name, address, or phone number. Contact information for your federal loan servicer can also be found by reviewing your loan(s) at https://studentaid.gov/. Exit CounselingExit Counseling helps students understand their rights and responsibilities as student loan borrowers. The exit counseling session will provide useful tips and information to help manage student loans, including repayment plans and estimated monthly payments. Any student that borrows funds from the Federal Direct Loan program is required to complete exit counseling when
Loan Repayment and ConsolidationOnce you graduate, drop below half-time enrollment, or leave school, your federal student loan goes into repayment. For Direct Subsidized and Direct Unsubsidized loans, you have a six-month grace period before you are required to start making regular payments. The U.S. Department of Education offers several different repayment plan options to help make payments more convenient and affordable. Please visit https://studentaid.gov/manage-loans/repayment for more information. What is better subsidized or unsubsidized loans?What's the difference between Direct Subsidized Loans and Direct Unsubsidized Loans? In short, Direct Subsidized Loans have slightly better terms to help out students with financial need.
Why is subsidized better than unsubsidized?The major difference between the two is that Direct Subsidized Loans don't charge borrowers interest during certain periods of deferment, like while you're enrolled in school. Direct Unsubsidized Loans charge interest during all periods.
What are the 3 main difference between subsidized and unsubsidized loans?Subsidized: Interest is paid by the Education Department while you're enrolled at least half time in college. Unsubsidized: Interest begins accruing as soon as the loan is disbursed, including while students are enrolled in school. Subsidized: No payments are due in the first six months after you leave school.
Do you have to pay back unsubsidized loans?Once you graduate, drop below half-time enrollment, or leave school, your federal student loan goes into repayment. However, if you have a Direct Subsidized, Direct Unsubsidized, or Federal Family Education Loan, you have a six-month grace period before you are required to start making regular payments.
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Difference between federal subsidized and unsubsidized loans
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