What's the difference between subsidized and unsubsidized loans?

Concerns & risks

You were trying to accept your aid package, but it lists 'subsidized' and 'unsubsidized' loans, and you don't know the difference.

Interest adds up.

Causes & evidence

For Direct Subsidized Loans, the government generally pays interest while you're in school at least half-time; unsubsidized loans accrue interest from disbursement. See student loan repayment.

What to do

1. Accept subsidized first.
2. Borrow only what you need.
3. Consider paying interest while in school.

Common mistakes: Common mistakes: accepting the full amount without looking at what you really need. You can accept less than you're offered. Subsidized loans are for undergraduates with financial need; the government pays the interest while you're in school at least half-time, during the grace period and during deferment. Unsubsidized loans start building interest right away. If you can, pay the interest on unsubsidized loans while in school, even a small amount each month, so it doesn't get added to your balance later. Take subsidized loans first because they cost less. Read your Master Promissory Note, and do loan entrance counseling carefully. Keep a list of all loans you take so the total doesn't sneak up on you.

Speed Man tip: Read your loan terms on StudentAid.gov.

Wrap-up: Subsidized: interest help. Unsubsidized: accrues. Borrow less.

Want the why behind it? Read FAFSA Basics in the wiki.