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Subsidized Versus Unsubsidized Loans

Article on Subsidized Versus Unsubsidized Loans

Applying for a student loan requires good decision-making skills on the part of the student. This is because there are numerous loan options available today and being able to go with one that offers the most benefits is important. In addition, the student should also be able to spot a financial aid program that is suitable for him or her, in terms of repayment capabilities and eligibility. This article will talk about subsidized versus unsubsidized loans to help students find out which is the better option to go for.

Understanding Subsidized Loans

A subsidized loan is a type of loan that does not require the student borrower to pay the interest for a given period of time. The government shoulders for it until such time the student is already capable of taking over the repayment, such as when he or she has already landed a job that will help pay for the loan. The most popular subsidized loan programs are the Federal Stafford Loan and Perkins Loan. This type of loan is only available for students with the greatest financial needs.

Understanding Unsubsidized Loans

To be able to determine which one is better when talking about subsidized versus unsubsidized loans, it is also necessary to understand what unsubsidized loans are. Unlike the subsidized loan, qualifications do not restrict only to families with insufficient income but this type of loan is open to those who simply need a little help to cover college expenses. However, with an unsubsidized loan, the student borrower pays for all the accumulated interest rates. Many private lenders and institutions also offer unsubsidized loans on top of federal programs.

Qualifications and Requirements

Students should know the qualifications and requirement to be able to decide on subsidized versus unsubsidized loans. To qualify for a subsidized loan, the student has to go through a stringent process to prove his or her financial incapacity to pay for college. Moreover, subsidized programs also require excellent academic standing. Unsubsidized loan programs only require an applicant to be a US citizen or an eligible non-citizen, have a high school diploma, pass the ABT test, and with satisfactory academic standing.

Subsidized Versus Unsubsidized Loans- Which is Better?

In an ideal scenario, a student should get both subsidized and unsubsidized loans. This is because although subsidized loans enable students to save more during repayment, there is a cap in the amount of money that can be borrowed. With an unsubsidized loan, there is higher interest rate but it also holds the advantage of having a higher cap, which can fund the entire amount needed for the school year. Where possible, a student should first apply for a subsidized loan and then put whatever’s not covered to an unsubsidized loan.

For those who are undecided on subsidized versus unsubsidized loans, the one thing that should be remembered is that it is necessary to carefully analyze the options. Find out the specific qualifications and requirements, and as mentioned, try to apply for a subsidized loan first before applying for an unsubsidized one. Not only because it gives students the benefit of saving on interest charges but also because if the application does not get approved, there is always the option of applying for unsubsidized loan.