Subsidized vs. Unsubsidized Student Loans: Financial Aid Considerations

If you've ever researched financial aid for college students, you already know that many options exist. This is good news because it means that you can get help paying for your education from multiple avenues. But understanding the difference between your financial aid options is critical to choosing the best ones for you based on your situation and circumstances.

Two financial aid options for college students that are offered by the federal government are subsidized and unsubsidized student loans, sometimes referred to as Stafford Loans. What's the difference between them?

Comparing Subsidized vs. Unsubsidized Student Loans

One of the biggest differences between a subsidized and unsubsidized student loan is who may apply for the monies. In the case of a subsidized student loan, this option is only open to undergraduates. Conversely, both undergrads and graduate students can apply to receive unsubsidized student loan funds.

Another difference is whether you need to show financial need in order to qualify. With a subsidized loan, financial need must exist, whereas you may qualify to receive an unsubsidized student loan without meeting any type of financial requirement.

Along the same lines, if you receive a subsidized student loan, the amount you receive cannot be greater than the amount of your financial need. With an unsubsidized student loan, the amount you receive is based on how much it costs to attend your school of choice and whether you obtain any other form of financial assistance.

When comparing subsidized vs. unsubsidized student loans, it's also important to realize that there are differences in regard to the interest payments. If you receive a subsidized student loan, the U.S. Department of Education is responsible for paying the interest as long as you are enrolled in classes half-time (or more).

This institution will also pay your interest for six months after you are done with school, called your "grace period," or any time that your payments are deferred or postponed. This is much different than with an unsubsidized student loan, in which repayment of the interest is your responsibility, no matter your status as a student or after leaving school.

Making the Best Decision for You: Subsidized vs. Unsubsidized Student Loans

Once you understand the differences between these two forms of financial aid for college students, it becomes easier to decide which is best for you.

For example, when choosing between a subsidized vs unsubsidized student loan, if you have financial need, the Department of Education will pay a portion of your interest. Depending on the amount of the loan, this can really add up.

On the flipside, if you opt for the unsubsidized student loan and you are an independent student—which essentially means that you are responsible for yourself financially—you can potentially borrow a higher amount.

As a first- or second-year undergrad, this amount is $6,000 versus $2,000 for dependent students. During subsequent years, the available amount for independent students increases to $7,000. In total, dependent students can borrow up to $8,000 in unsubsidized student loans. Independent undergrads can borrow as much as $34,500, with independent graduate or professional students able to borrow the most at $73,000.

The amount you can borrow on a subsidized student loan does not change based on your status as a dependent or independent student. It only changes based on your year of study. First-year undergrads can borrow up to $3,500. This amount increases to $4,500 the second year and $5,500 the third year and beyond. (Remember that graduate-level college students do not qualify for a subsidized student loan.)

For a refresher on dependent vs. independent college students, check out this blog article.

Need Help Navigating Financial Aid for College Students?

At Saint Leo University, we understand that attending college is a major financial investment. We also know that making the right decision for paying for this investment is important to your financial health both now and long-term.

Therefore, if you want to learn more about your options regarding financial aid, visit our Financial Aid page. This provides helpful information about the types of financial aid available, the process of obtaining financial aid for college students, military and veteran benefits, tuition costs, and more.

If you'd like to speak with someone directly, you can also contact us via phone, fax, or email. Our friendly and supportive staff is here to help you fully understand your options for obtaining financial aid as a college student. We'd also be glad to discuss subsidized vs. unsubsidized student loans if you're still unsure which option is best for you.