Choosing Between Subsidized and Unsubsidized Student Loans

Post-secondary education is expensive. However, the federal government offers both subsidized and unsubsidized student loans to help people pay for it. As such, they need to learn the in-depth details of subsidized vs. unsubsidized student loans when looking for undergraduate student loans. Something that should help people make the best choices for themselves.

What Are the Major Differences Between Subsidized and Unsubsidized Student Loans?

For starters, it is important to note that subsidized and unsubsidized student loans have a lot of similarities with one another. Both have low-interest rates because the federal government’s biggest concern isn’t making money. Similarly, both subsidized and unsubsidized student loans come with protections such as deferment, forbearance, and flexible repayment for borrowers, which can be very useful if they run into financial problems. On top of this, neither option requires a credit check, which to be fair, makes excellent sense. After all, most post-secondary students don’t have much of a credit score, thus making such checks less useful than they would be under other circumstances.

However, there are real differences between subsidized and unsubsidized student loans that people should keep in mind. For example, subsidized student loans are available to undergraduate students and only undergraduate students. In contrast, unsubsidized student loans are available to not just undergraduate students but also both graduate students and professional degree students. This isn’t a huge issue for people who are heading into an undergraduate-level program, but this can be very important for everyone else.

Moving on, subsidized student loans are meant for people who need them. Due to this, they should know that they will be expected to show their financial need. Otherwise, people won’t be able to get subsidized student loans at all. Perhaps unsurprisingly, subsidized student loans often come with lower interest rates compared to their unsubsidized counterparts. Moreover, their interest is paid by the federal government during the student’s education as well as the six-month grace period afterward. In contrast, the interest on unsubsidized student loans will start accruing right away, though borrowers won’t have to start making repayments until after their education as well as the six-month grace period afterward.

Of course, subsidized student loans have downsides as well. To name an example, people can borrow smaller amounts when compared with their unsubsidized counterparts. This can be seen in how the aggregate maximum for subsidized student loans is $23,000 for both dependent and independent undergraduate students. In contrast, the aggregate maximum for unsubsidized student loans is $31,000 for dependent undergraduate students, $57,500 for independent undergraduate students, and $138,500 for graduate students. Due to this, if people find that subsidized student loans aren’t enough for their needs, they might have to supplement them using other student loans.

Besides this, both subsidized and unsubsidized student loans share a potential con as well. In short, the unpaid balances of both kinds of student loans won’t be discharged in the event of bankruptcy. However, people who have taken out subsidized student loans might be able to get either all or a portion of the outstanding balances forgiven under certain circumstances. As such, one could argue that is a potential upside for subsidized student loans versus their unsubsidized counterparts.

Further Considerations

Summed up, there is no simple answer to the question of subsidized vs. unsubsidized student loans because everything depends on a borrower’s particular needs and preferences. For example, someone with a financial need should go for subsidized student loans because that means lower costs as well as more protections for them. In contrast, someone without a financial need won’t be able to get subsidized student loans at all, thus making unsubsidized student loans the better choice for them by default. Ultimately, interested individuals must look further into the issue so that they can make the informed decision that will best serve their financial interests in the long run.