Subsidized loans offer many benefits if you qualify for them. While these loans are not “better” than unsubsidized loans, they offer borrowers a lower interest rate than unsubsidized loans. The government pays the interest on them while a student is in school and during the six-month grace period after graduation.
Then, what is the difference between subsidized and unsubsidized student loans?
Subsidized Loans do not accrue interest while you are in school at least half-time or during deferment periods. Unsubsidized Loans are loans for both undergraduate and graduate students that are not based on financial need.
Accordingly, do you pay back subsidized loans?
A subsidized loan is a type of federal student loan. … 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.
Should I pay off subsidized or unsubsidized first?
When prioritizing loan repayments, it’s a good idea to repay your direct unsubsidized loans first before paying back your direct subsidized loans. Because an unsubsidized loan continues accruing interest while in school, the balance of your unsubsidized loans will be larger unless you paid the interest while in school.
The loan remains a subsidized loan and the federal government will continue to pay the interest that accrues during the in-school and grace periods. … Prepayments have the same effect regardless of whether they are made during or at the end of the in-school and grace periods.
It’s important to know that you’re under no obligation to accept all the federal student loan money made available to you. You can accept all, some or none of the federal student loans you’re offered. Your award letter may also include scholarships or grants, which is genuinely free money you never have to pay back.
When it comes to federal subsidized and unsubsidized loans, reddit users agree that subsidized loans should come first. Then, you should apply for unsubsidized loans if you need more money.
Pros and Cons of Subsidized Loans
Because the federal government pays the interest during the periods noted above, subsidized loans will save you money. They offer flexible repayment options you won’t find with private loans. You’ll pay lower interest rates on these loans than on comparable private student loans.
Parents and graduate students may be eligible for PLUS loans, another type of federal student loan. At 7.08%, these have the highest interest rate of any federal student loan. It should be noted that there is an aggregate limit to how much money students may borrow on federal loans.
Pros and Cons
- No interest is accrued if you are enrolled in school.
- After graduation, the loan will not accrue interest for six months.
- Income driven repayment plans.
- Eligible for deferment.
- Eligible for forbearance.
- Fixed interest rate.
- No credit check.
- Tax deductible interest.
There are four types of federal student loans available:
- Direct subsidized loans.
- Direct unsubsidized loans.
- Direct PLUS loans.
- Direct consolidation loans.