Let’s take a look at the difference between a subsidized and unsubsidized loan as they are known to be federal student loan types.
When it comes to federal loans from the government, you can opt for either a subsidized or unsubsidized loan in the US. Most students rely on this form of loans for financing their tuition in the colleges and universities.
In applying for a federal loan, one might be wondering which among this two types of loans is good. Although both subsidized and unsubsidized loans are federal loans, their loan limits are different.
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Similarities between a subsidized and unsubsidized loan
Although these two loans comes in different forms, they have certain things in common. Check them out below;
- Low interest rates
- Flexible terms of payments
- Monthly installment payment
- No credit score check
Difference between a subsidized and unsubsidized loan
- Subsidized loans are eligible to only undergraduates while unsubsidized can be accessed by undergraduate, graduates and professional students.
- Subsidized loans is based on the financial need of the graduate while Unsubsidized loans are not based on financial needs of the student but the loan amount you get is determined by the school based on certain information.
- Subsidized loans have lower loan limits while unsubsidized loans have high loan limits.
- While the education department of your school pays the interest on your subsidized loan, that of unsubsidized is accrued and paid by the borrower.
- Subsidized loans are determined by cost the attendant – expected family contribution and other financial aids while unsubsidized loans are determined by the cost of attendance – other financial aids.
- As at July 1, 2021, 3.73% fixed was the interest rate for subsidized loan while 3.73% fixed (for undergraduate) and 5.82% (for graduates) for Unsubsidized loan.
Eligibility criteria
- Be a first year student in one of the institutions under the federal loan program.
- Be a US citizen or permanent resident
- Have a social security number
- Be registered with a selective service (for males between the ages of 18 – 25)
- Good academic record
- High school certificate
- No default on any federal loans
How much can I borrow ?
Below is a federal loan limits for dependent undergraduate students who wants to access the following loan
Subsidized Loan Unsubsidized Loans
$3,500 $2,000 (1st year)
$4,500 $2,000 (2nd year)
$5,500 $2,000 (3rd & 4th)
Between Subsidized Loans Unsubsidized Loans, which is good?
In my opinion and if you have read thoroughly from the beginning of this article, your interest should be in subsidized loans. This is because it has lower interest rates, the federal government pays the interest and doesn’t accrue.
You also get to start making payment after 6 months. As an undergraduate, go in for subsidized loans to help you pay your loan timely. Always remember that subsidized loans will be based on your financial needs which the amount won’t be determined by your school under the federal loan program.
Note: When it comes to payment of loan, the school receives it on your behalf and pay for your tuition expenses including accommodation. In case there is an extra money left after the expenses, you will receive a refund from the school within 14 days.
In order to cancel a federal loan, one must do that within 120 days before the deadline date. Make sure you return the full amount borrowed on time.
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