What is the difference between Subsidized and Unsubsidized student loans?

Do both loans have to be paid back?

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  • Nancy
    Lv 6
    7 months ago
    Favorite Answer

    They're loans, so of course they have to be paid back. If they didn't have to be paid back, they'd be called scholarships or grants, not loans.

    The difference between subsidized loans and unsubsidized loans is the government provides a subsidy for subsidized loans that pays your interest while you're in college, while unsubsidized loans have no such government subsidy, so interest accrues and compounds by being added to your principle balance, meaning you're being charged interest on the principle as well as interest on the interest the entire time you're in college—that is unless you opt to pay the interest as you go in college, which you are advised of and receive statements of so that you can pay that interest instead of having it compound while you're in college.

    So, for example, if you borrow $10,000 in subsidized loans, when you graduate, the loan amount you'll have to start paying back is $10,000, but if you borrow $10,000 in unsubsidized loans at 5% interest for 4 years compounding monthly, the loan amount you'll have to start paying back when you graduate will be $12,200 because $2,200 of accrued interest will have capitalized as additional principle, unless you pay the interest as you go like the government does when it subsidizes your subsidized loans.

  • nancy
    Lv 7
    7 months ago

    Yes, both have to be paid back. The difference is that a subsidized loan has no interest until you graduate (or drop below half time). The unsubsidized loan has interest from the time it is disbursed (i.e. while you are in school). Most students choose to defer payments on their loans until they graduate. With the unsubsidized loan, even though you are not making payments, interest is still accruing. When you enter repayment, that accumulated interest is added to the principal of the loan, so you will be paying back (and paying interest on) a larger amount than you originally borrowed.

  • Greg
    Lv 7
    7 months ago

    If you do not know what subsidized means, you do not belong in college.

    • John7 months agoReport

      And if you don't know what loan means, you should not be taking them out. Every loan, by definition, is loaned to you. (much as the name "loan" would imply.)

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