Subsidized and Unsubsidized Student LoansYou should know the difference between subsidized and unsubsidized student loans. The federal government pays the interest on a subsidizedstudent loan during in-school status, grace periods, and authorized deferment periods. To qualify for a subsidized Stafford Loan, a student must have financial need.A borrower unable to qualify based on need for a subsidizedStafford Loan may apply for an unsubsidized Stafford Loan, which is not based on need. Also, a student able to qualify for only a part of the subsidized Stafford Loan limit may apply for an unsubsidized Stafford Loan to cover the EFC and any unmet financial need (up to the annual loan limit). An unsubsidized student loan does not qualify for the interest subsidy that the federal government pays on a subsidized loan during in-school, grace, and deferment periods. Sos, while a student with a $1,000 unsubsidized Stafford will receive the same educational benefit as a student with a $1,000 subsidized Stafford, the cost of repaying the loan will be higher. Note that all PLUS loans are unsubsidized loans. In most cases, the interest that accumulates on an unsubsidizedloan will be capitalized and added to the principal balance. It's important to know that a student can reduce interest costs on the loan by continuing to make monthly interest payments during periods when the repayment of principal is deferred (in-school, grace, and deferment).
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