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Federal Subsidized vs Unsubsidized Loan Rates and Fees

Federal Subsidized vs Unsubsidized Loan Rates and Fees

There is little difference between subsidized vs unsubsidized loan. The most important one is the interest rate on the money borrowed. However, this single difference will cause other loan terms to change, and therefore the convenience of a subsidized loan should be viewed in light of all loan terms and not just by comparing the interest rate.

Subsidized vs Unsubsidized Loan

Subsidized Loans

Typically, corporate loans have a specific interest rate, which can be fixed or variable, and which is calculated according to market conditions and taking into account the applicant’s credit and financial situation.

Subsidized vs Unsubsidized Loan
Subsidized vs Unsubsidized Loan

For example, someone with poor credit or low income tends to get worse credit terms than someone with good credit and an acceptable income-to-debt ratio. This also includes a higher interest rate.

In respect of subsidized vs unsubsidized loan, the subsidized loans pay lower interest regardless of the borrower’s creditworthiness or income.

This is because either the government or a private institution reduces the rate to encourage certain activities, investigations, protection of an underprivileged minority or region, etc.

So it does not matter what the borrower’s current credit or financial situation is, but whether he meets the requirements for applying for such a loan.

In terms subsidized vs unsubsidized loan of these requirements have to do with the specifics of the business the lender wants to promote and therefore no one can apply for these subsidized vs unsubsidized Loan even if their creditworthiness is good.

Unsubsidized Loans

Unsubsidized loans carry higher interest rates and have no private institutions or government to support the financial transaction. These are regular business loans, where the applicant’s credit situation and financial situation are an important criterion for whether or not the borrower is approved for the loan.

However, there are no special requirements for doing business and thus any company can apply for an unsubsidized loan. The approval and the credit terms are based solely on the applicant’s creditworthiness and ability to repay.

However, there will be no restrictions or control on the use of the money the borrower receives through these subsidized vs unsubsidized Loan.

Because the interest rates on these loans are higher due to their unsubsidized nature, the rest of the loan terms will offset the higher interest rates and you can thus get higher loan amounts and longer repayment programs.

This means that by extending the loan repayment plan, you will get more money, but at the same time you will get lower monthly payments.

Difference Between Subsidized vs Unsubsidized Loan

According to a March 2012 study by the Federal Reserve Bank of New York, the average outstanding loan balance per borrower is $23,300; a quarter of borrowers owe more than $28,000; and 0.45% of borrowers owe more than $200,000. If you’ve studied medicine, business, or law, chances are you’re in the latter category of debt with a six-figure student loan balance and wondering how to fight that monkey on your back.

Students have a variety of options to choose from when deciding how to finance their tuition, but it is important to understand the details and requirements of the loan that is being taken out to fund higher education. This article describes the different types of campus based student loans, explains the difference between subsidized and unsubsidized loans, and explains when to consolidate.

Funded Versus Unsupported

Let us first compare subsidized vs unsubsidized loan. When you borrow money, you owe interest on the outstanding amount of your loan. When the interest on a student aid starts running depends on whether it is subsidized or unsubsidized. In the case of a subsidized loan, the interest only accrues after completing your studies and starting repayment of the loan. In the case of an unsubsidized loan, on the other hand, the interest accrues from the moment the student loan amount forgiven.

This important difference explains why someone is graduating and finding that their student loan balance is much higher than they expected. For example, let’s say you borrowed just $20,000 at 5% to fund the first year of your 4-year bachelor’s degree; If this loan was subsidized, the loan balance would still be $20,000 after you close, and interest starts at 5% once your grace period ends and repayment begins.

However, if your loan was not subsidized, your loan would have accrued $1,000 in interest by the end of your first year of college. If you haven’t paid that $1,000, it will be added to your original $20,000 balance (also known as capitalized interest or negative amortization) and this process will continue until you start paying the loan. The following are the two loans side by side in comparison:

Loan Balance (Subsidized vs Unsubsidized Loan)

  • Year-end subsidized not subsidized
  • Newbie $20,000 $20,000 x 1.05% = $21,000
  • Second year $20,000 $21,000 x 1.05% = $22,050
  • Junior $20,000 $22,050 x 1.05% = $23,152
  • Senior $20,000 $23,152 x 1.05% = $24,310 balance after graduation $20,000 $24,310


Perkins loans are subsidized and are designed for students with exceptional financial needs and can be used for both bachelor and master degrees. Perkins loans are set at 5%, have a repayment period of up to 10 years, and the amount is capped based on your scholarship for student status.

Subsidized vs Unsubsidized Loan
Subsidized vs Unsubsidized Loan

Direct Stafford

Stafford loans are also intended for college students, graduates, and professionals, but they can be either subsidized or unsubsidized.

Direct Subsidized Loans are for students in financial need and as long as you are at least part-time, within your grace period, or deferred, you will not be charged interest.

Direct unsubsidized loans do not require proof of financial need and are available to all students.

PLUS Loans for Students and Professionals

PLUS loans are designed for college graduates and professionals and have a fixed interest rate of 7.9%. You must have good credit to receive a PLUS loan and you must have exhausted your eligibility for direct subsidized and unsubsidized Stafford loans.

For PLUS loans, a fee of 4% is levied on the loan amount, which is deducted from the loan proceeds. There are amortization plans that will allow you to amortize your loan between 10 and 25 years.

Student’s parents can also apply for Parent PLUS Loan for the betterment of their child’s higher education in any college or universities in US or in abroad.

How to Consolidate

Do you have multiple types of loans from different lenders from your academic years and years? Do you pay multiple loans and at different interest rates? The Department of Education direct consolidation loan might be just what you have been looking for.

The direct consolidation loan pays off all your loans and gives you a loan with a one-time payment and a fixed interest rate. The interest rate is calculated using the weighted average rate of all of your loans with an upper limit of 8.25%.

Subsidized vs Unsubsidized Loan.