Definitions of Subsidized & Unsubsidized Loans
Federal government loan programs help make college affordable for students and their parents. Several loan programs are available, including Perkins Loans, Stafford Loans, PLUS Loans and Consolidation Loans. Stafford Loans can be either subsidized or unsubsidized loans. The difference between subsidized and unsubsidized is primarily in interest charges.
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Types
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The federal government pays the interest on subsidized Stafford loans while the borrower is at least a half-time student. The government is subsidizing the cost of the loan by paying interest for the borrower. Interest accrues on unsubsidized Stafford Loans while the student is in school. The borrower has the option of paying the interest while in school or capitalizing the interest, which adds the interest cost onto the loan principal.
Financial Need
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Student loans are a form of financial aid. Subsidized Stafford Loans are awarded on the basis of financial need. There is not a financial-need requirement to obtain an unsubsidized Stafford Loan.
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Benefits
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Subsidized loans are less costly for the student than unsubsidized loans are. The interest is paid by the federal government while the student is enrolled as at least a half-time student, saving the student money.
Size: Undergraduate Students
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The amount a student can borrow depends on what year they are in school and for undergraduates, whether they are a dependent or an independent student. For first-year dependent students the maximum Stafford Loan amount, as of 2010, is $5,500, of which no more than $3,500 can be subsidized. The first-year limit for independent students is $9,500, of which no more than $3,500 can be subsidized. For second-year dependent students the maximum Stafford Loan amount is $6,500, of which no more than $4,500 can be subsidized. The second-year limits for independent students are $10,500 and $4,500 respectively. For dependent students in their third year or beyond the maximum annual Stafford Loan limit is $7,500, of which no more than $5,500 can be subsidized. These limits for independent students are $12,500 and $5,500, respectively. The maximum Stafford Loan amounts that can be taken as an undergraduate student are $31,000 for dependent students and $57,500 for independent students.
Size: Graduate Students
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Graduate students can obtain Stafford Loans up to $20,500 per year, of which no more than $8,000 can be subsidized, as of 2010. A total of no more than $138,500 can be taken in Stafford Loans, including loans taken as an undergraduate. No more than $65,500 of this total can be in subsidized Stafford Loans.
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