How to Compare Unsubsidized vs. Subsidized Student Loans

Three Methods:Applying for and Comparing Loan OffersAnalyzing and Choosing a LoanFinding Other Options

When a student applies for college financial aid, he or she and the parents should know how to compare unsubsidized vs. subsidized student loans in order to make an informed decision on what sort of student financial aid to select. The biggest difference between the two is how much you are allowed to borrow each year, but there are many factors that should play into your loan choice decision.

Method 1
Applying for and Comparing Loan Offers

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    Fill out the Free Application for Federal Student Aid (FAFSA) form to determine how much financial aid you qualify for. Most students log onto the website to fill out the forms, but you may be able to acquire hard copies from your school guidance staff or a college you are applying to.[1]
    • The FAFSA form will ask for tax information, but don't wait until you file your tax returns to submit the form. Estimates can be provided until you have the actual numbers. Try to send in the form the January before you start college.
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    Receive your Expected Family Contribution (EFC). This is the amount of money that the government expects you and your family to contribute to your education each year. The remainder of the amount due will be offers from the colleges of scholarships and loans. Most families cannot afford the entire amount of the EFC to pay for college, and will supplement this with unsubsidized loans.
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    Determine your total costs for college. This includes not only tuition and fees but also room and board (unless you will live with parents or relatives for free), textbooks, supplies, laboratory fees and transportation costs.

Method 2
Analyzing and Choosing a Loan

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    Compare your student loan offers by repayment schedules. As a student you may not have the time or energy to pick up a job while you are in college in order to start paying back loans and interest, so knowing which loan lets you defer all payments while you are in school can be helpful.
    • With a subsidized student loan, the interest is not charged until you graduate. It is considered deferred and is subsidized by the federal government. You start paying the principal amount and the interest after you graduate. With an unsubsidized student loan the interest is charged from the time that the funds are first disbursed to you.
    • Both loan types will allow you to defer your principal and interest payments until after you graduate. However, an unsubsidized loan will add the amount of interest accrued from when you first took out the loan to your total amount owed when you graduate.
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    Compare your loan options by how much you can borrow. The amount that you need to borrow may influence which loan you choose. The cost differences at various colleges may weigh into your decision.
    • Subsidized loans have a specific cap on how much you can borrow. Unsubsidized loans also have a cap, but it is typically is around $4,000 more than subsidized loans that you can borrow per year.[2]
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    Review the differences in loan requirements between unsubsidized vs. subsidized student loans. Your personal financial circumstances may be too high to even qualify for a subsidized loan, so be aware of what the requirements are before you start applying.
    • Subsidized loans are dependent upon your financial status and specific need. Your specific school will determine how much money you qualify for with an unsubsidized or subsidized loan. Many students end up using their subsidized loan money first, and then piggyback it with an unsubsidized loan.
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    Compare the loans' similarities and differences. Both the unsubsidized and subsidized student loans give you 10 years to pay them back, and depending on your circumstances, there are other programs that allow you to pay within 20 or 25 years. They both also come to you with fixed interest rates.[3]
    • Unsubsidized loans start charging interest from the moment the money is given to you. However, sometimes the lender will give you the option to make “interest-only” payments while you are still in school. Or you can make arrangements to postpone paying the interest along with the principal until you leave school and the repayment period starts.[4]

Method 3
Finding Other Options

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    Research other loan options. If your unsubsidized and subsidized loan offers do not meet your financial needs you do have other possibilities. These include private student loans from a bank or credit union, state aid programs, a home equity loan from your parents' home, or a Parent Loan for Undergraduate Students (PLUS) loan where financial institutions lend money to parents to cover the education expenses of a dependent child.[5]
    • Graduate students are only eligible for unsubsidized federal and Graduate PLUS loans. If you want to go to graduate or medical school, a subsidized loan won't be an option for you.[6]
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    Apply for a Federal Perkins loan. This type of loan is made available through schools and is funded by the federal government for low income students. Interest is not charged while you are enrolled in a post-secondary school at least half-time, and you do not have to start paying it back until nine months after you graduate or when your enrollment is less than half-time.[7]
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    Contact the Financial Aid Office of the college of your choice. Ask that their financial aid offer be increased by explaining for, example, that your financial situation has changed such as the loss of a job of a parent. Also inform them of any higher financial aid offers from other colleges and ask if they will match it.


  • If you have an unsubsidized loan, you can still go ahead and make interest payments while you are in school. If you choose not to, though, the accrued amount will be added to your principal payment, which in turn raises your interest rate when you leave school because the rate is based off of a higher principal payment.


  • On a subsidized loan program, you have to be in school at least half-time to meet the requirement for deferred interest.
  • You also must be a U.S. citizen or eligible resident non-citizen.
  • It can be difficult to discharge Federal student loans even in bankruptcy. Borrow only what you need.

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Categories: Budgeting and Financial Aid for College | Mortgages and Loans