Student Loan: Subsidized and Unsubsidized

Student loan

Student loan refers to the assistance in monetary terms offered to students looking to study abroad; by government and private institutions. The said loan covers the gap in your college funding. When we talk about federal student loans, it is the government who provides the loan to international students.

The educational loan is bifurcated into subsidized student loans and unsubsidized student loans on the basis of interest rate present on the loan.

Subsidized student loan – What makes subsidized loan different is who pays the interest rate! So, the government takes full responsibility of covering your interest rate for at-least half duration of your course and during any deferment as well. Students need to express their financial need on FAFSA (Free Application for Federal Student Aid) to obtain the loan. 

(What is FAFSA?)

FAFSA is a form launched by the US government in order to grant financial aid. You need to fill the FAFSA form and you will be evaluated on the basis of your written information.

Unsubsidized student loan – It is a standardized loan, the interest on which the student has to pay himself. The interest accrues automatically and the student has to pay the whole sum. Once you graduate and start paying back the loan amount, you would be required to pay the total interest accrued unless you have paid it during college.

Eligibility for loans

The eligibility for each type of loan is based on the following factors:

  • Financial need – A student’s need for finance can help them qualify for a subsidized loan whereas you don’t need to express a financial need to qualify for unsubsidized loan. However, the need is evaluated on how you have filled your FAFSA form.
  • Educational status –Only an undergraduate student qualifies for a subsidized student loan whereas graduate and professional students aren’t eligible for it. However, post-graduate students can have a claim on unsubsidized loans.
  • Annual loan limit – If you have crossed your threshold of lower annual limit of subsidized loan and the gap in your college funding still exists, you can apply for an unsubsidized loan.

Loan limits

Subsidized – For a first year dependent undergraduate student – USD 3,500  for the entire duration of graduation – USD 23,000

Unsubsidized – For a dependent undergraduate student – USD 5,500 .For the entire duration of graduation – USD 31,000 (Dependent); USD 57,500 (Independent)

Interest accrual 

Subsidized loan

  • The government covers the interest accrued in the 6-month grace period.
  • At the time of paying back loans, the government stops covering interest charges and students have to bear any interest that accrues forward.

Unsubsidized loan 

  • The interest accrued in grace period is to be borne by the student only.
  • Even during deferment, the interest charges have to be paid by the student itself.

Key differences 

Pointers

Subsidized loan

Unsubsidized loan

Qualification

By expressing financial need

No need to express financial need

Borrower

Undergraduate students

Undergraduate, graduate and professional students

Borrowing amount

Up to USD 3,500–5,500, depending on your year in college

Up to USD 5,500-7,500, depending on your year in college

Interest rates 

Fixed annual percentage rate (APR) is 4.99%

APR for undergraduate loans – 4.99%

APR for graduate loans – 6.54%

*Note – The interest rate is accrued on or after July 1, 2022 through June 30, 2023

It basically comes down to your requirement from the said loans. It would also depend on the eligibility period for each type of loan. Like for unsubsidized loans, there is no time limit whereas if you are borrowing subsidized loan for the first time, you are allowed to borrow for 1.5 times duration of your overall academic period. While selecting the type of loan, also review the interest aspects as you would not want to focus on your liability rather you would, on your study abroad education.

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