Which Is Better: A Subsidized Federal Loan Or An Unsubsidized One?

Should you get a subsidized and unsubsidized federal loan?

Flickr user David Fant

When it comes to paying for college, many students end up taking out student loans. If students filed the FAFSA (which everyone should), they’re eligible for federal student loans. But did you know that there are two types of federal loans? Both a subsidized and unsubsidized federal loan is offered by the federal government and are similar in many ways. You have to file the FAFSA to get either a subsidized and unsubsidized federal loan, and the schools you have applied to determine the amount you can borrow. Both loans also have the same fees, interest rates, and repayment terms, and the interest on both loans starts accruing as soon the loan amount is disbursed.

Because of these similarities many borrowers often make the mistake of thinking they are the same. However, there is one big difference between the two loans and this one difference can have a huge impact on your overall debt.

Subsidized Loans

When you take a subsidized federal loan, the federal government pays the interest on the loan from the time it is disbursed till 6 months after you graduate (called the grace period) as long as you remain enrolled in school with at least a half-time status. In other words, you don’t have to worry about accruing interest in that time. That means that by the time you graduate and pass the grace period, you have less debt to repay. Student loan interest adds up quickly, so having the government cover the interest while you’re still in school and half a year after graduating is incredibly helpful.

Ascent company logo.

A loan designed with you in mind

Variable cosigned rates from 1.75% - 10.54% APR with auto-debit


Unsubsidized Loans

This does not happen with unsubsidized federal loans. With an unsubsidized loan, you are responsible for paying all the interest that accrues on your loan. The federal government does not pay off the interest. So although you start making payments after your grace period, the interest starts accruing from the day the money is disbursed to you. In other words, while you’re in school, the interest is still adding up.

However, since unsubsidized loans are not based on demonstrated financial need (unlike subsidized loans, which are). Thus, the amount you can take out with an unsubsidized loan is much higher than its counterpart. Additionally, unsubsidized loans are available to both graduate and undergraduate students, while subsidized loans are only for undergrads.

So Which Should I Pick?

Generally speaking, undergraduate students should look at pursuing a subsidized loan first. But with proper financial planning, an unsubsidized loan isn’t as terrible as you might think. Regardless of which one you pick, only take out as much loans as you need and not any more. The less debt you have when you graduate, the sooner you can save more money, make bigger purchases (such as buying a home), and of course, the less you’ll have to repay.

To recap: the government covers a subsidized loan’s interest while you’re in school and during your grace period. The government doesn’t cover an unsubsidized loan’s interest, but you get to take out more and it’s available to graduate students. While we recommend subsidized loans, it’s up to you to pick which one best suits your needs.

Use College Raptor’s free Student Loan Finder to compare lenders and interest rates side by side!



Lender Rates (APR) Eligibility
Sallie Mae logo.
2.62% - 12.97% Variable
3.75% - 13.72% Fixed
Undergraduate and Graduate
Credibe company logo.
1.29% - 12.99% Variable
3.15% - 14.75% Fixed
Undergraduate and Graduate
Lendkey company logo.
Undergraduate and Graduate
Ascent company logo.
1.75% - 10.54% Variable
3.22% - 13.09% Fixed
Undergraduate and Graduate
College Ave company logo.
1.69% - 12.99% Variable
3.22% - 13.95% Fixed
Undergraduate and Graduate
1.66% - 6.21% Variable
2.94% - 7.15% Fixed
Undergraduate and Graduate
Earnest company logo.
2.09% - 11.69% Variable
3.47% - 13.03% Fixed
Undergraduate and Graduate
1.86% - 11.52% Variable
3.20% - 11.99% Fixed
Undergraduate and Graduate
College Raptor is not a loan lender and does not assume responsibility for suggesting a loan to a user who may not be eligible for it. Rates, terms, conditions, eligibility, approval, and other considerations are the decisions of the lenders and may vary depending on which lender or marketplace the user selects. We urge users to carefully consider and review all loan options and terms before committing to taking out a loan.

Leave a reply

Your email address will not be published.