Student loans can be very complicated and hard to understand. There are many different types of loans, each of which have different terms and conditions. Two major categories of student loans are subsidized versus unsubsidized loans. There are significant differences between the two.
In the United States, the federal government is one of the major lenders of student loans. The Stafford Loan program is the largest and most commonly used program that is offered by the federal government. Just about everyone qualifies for Stafford Loans, as long as they are enrolled in an approved program.
A subsidized Stafford loan is one where part of the interest that accrues during the course of the loan is covered by the government. Of course, this means that it’s actually being paid by taxpayers. The loan is still the responsibility of the student who borrows the money, but the interest rate is significantly lower than it would be were the loan taken out at market rates.
Subsidized loans offer a great deal to the student. There is just about no way to get a better rate on a loan than a subsidized loan is able to offer. In addition to the interest rate subsidy, there are other advantages to these loans. These include long repayment periods, and even income based repayment plans where you pay back the loan based on the amount of money you make.
An unsubsidized loan is simply one where the student doesn’t get a break on the interest rate. The federal Stafford Loan program offers these loans as well. Typically a student will take out the maximum subsidized amount before he or she bothers to take out an unsubsidized loan. The interest rate on these unsubsidized loans is going to be a bit higher.
In some cases, the interest rate offered by a subsidized loan is going to be about the same as what a student could get from a student loan that is offered by a non-government lender. These loans are more realistic as far as cost compared to the general loan marketplace.
In almost all cases, it’s better to get as many of your loans to be subsidized. A student will save a lot of money out of his or her pocket over the long run, especially as most of these loans are not paid back for many years after a person gets out of school. The money from these loans comes from taxpayers, and we all know that you’re going to be paying taxes back to the government whether you take one of these loans or not – so you may as well get your money’s worth.