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What is a Subsidized Loan?

Malcolm Tatum
Updated May 17, 2024
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Subsidized loans are student loans that provide interest benefits while the student is attending an education institution as well as selected time periods after the student leaves the institution. The federal government pays the interest on a subsidized loan during the time the student remains in school and also during the grace period that follows graduation or termination of attendance. A subsidized loan may also be eligible for a deferment period in some cases.

Students find this type of loan can ease financial burdens while pursuing a degree. With unsubsidized loans, the student is still responsible for all the interest payments, usually beginning at the time of acceptance into the loan program. Since the federal government takes care of the interest payments before the repayment period commences, a subsidized loan makes it easier for the student to focus on studies and have one less financial issue to handle.

While there are a number of different programs that offer student loans, the subsidized variety must meet criteria established by the federal government. There are several different types of loans that are subsidized, making it possible for students in several different income brackets to apply for this form of financial aid. Two of the most common examples of this type of loan are the Subsidized Stafford Loan and the Perkins Loan.

By contrast, an unsubsidized loan is more or less a standard loan arrangement, although some programs may provide flexible repayment terms. There are no breaks on the payment of interest, and it is not unusual for this type of loan to at least require the interest on the loan be repaid on a regular schedule, even if payment of the principal is deferred until after graduation.

For students who can qualify for a subsidized loan, the repayment terms provide not only less financial worries while in school. There is also usually a six month grace period after graduation before payments must begin. In some instances, the structure of the loan will even allow additional deferment periods that provide additional time for the graduate to settle into a job and begin to make regular payments.

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Malcolm Tatum
By Malcolm Tatum , Writer
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGEEK, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.

Discussion Comments

By Fa5t3r — On Dec 11, 2012

@croydon - That's sad, but at least they did know what they were getting into. What scares me is how many people are willing to sign loans or get credit cards where the bank is entitled to change the interest rate.

So many kids sign up for what seems like a great deal, only to find themselves crippled with debt. It's one of the reasons I would fight as hard as possible to get subsidized loans, or to try and pay your own way through college, if at all possible. Relying on the banks is just so dangerous.

By croydon — On Dec 11, 2012

@KoiwiGal - I find most subsidized loans aren't enough to cover all the costs anyway, particularly if you're going out of state. You've just got to be super careful about how you go about getting the unsubsidized loans as well.

I heard about a case recently where a mother co-signed with her son for both kinds of loans so that he could go to a good school. But, he died after finishing school, but before paying any of them off.

The subsidized loans have a clause that says if the student passes away, the debt dies with him. However, the unsubsidized loans don't have a clause like that and as a co-signer of those loans, the mother is now expected to pay them back.

People think it will never happen, but they have to be prepared if it does. It's a legal contract and they will want to make their money back.

By KoiwiGal — On Dec 10, 2012

@ChessPlayer - The difficulty with this sort of thing is how they estimate who should be eligible for the loans, in my opinion. 60,000 isn't really all that much, particularly if you've got a lot of kids, or if one of them gets into a more expensive school. Not to mention, I know of cases where the parents were separated, but not divorced and one of them refused to pay for university.

After all, once your kid hits 18 that's your legal obligation to pay for anything gone. But they may still count both parents' income. It's definitely better to have these subsidized college loans available, I just wish they were more available.

By ChessPlayer — On Aug 25, 2010

sunflower34- Yes, you must demonstrate financial need in order to qualify for a subsidized federal student loan. Your family income must generally be below 60,000 for you to qualify for this type of loan. However, other factors can also contribute to your eligibility.

You need to fill out and submit your FAFSA in order to know if you qualify for a subsidized loan. The FAFSA is a declaration of your assets and income. Your eligibility is based on your estimated family contribution (EFC). If your family is estimated to contribute a lot of money toward your education, you will likely not be eligible for a subsidized loan. Rather, you will have to apply for an unsubsidized loan.

By sunflower34 — On Aug 25, 2010

Is it necessary to show financial need in order to qualify for a subsidized federal student loan?

Malcolm Tatum

Malcolm Tatum


Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
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