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The key differences between subsidised and unsubsidised student loans

The key differences between subsidised and unsubsidised student loans

While most people can make the distinction between a private and government college loan, there are many who don’t know the different kinds of government college loans.

Before you apply for a student loan, it is important to be aware of the terms of the loan and its applicable interest rates.

The terms of a loan determine how much you will be expected to repay once you graduate. At the same time, different loans have different repayment plans and it’s up to you to find which one best suits you.

In order to have a better understanding of government college loans, let’s discuss the differences between subsidised and unsubsidised college loans.

Subsidised college loans

These are loans offered to needy students where the government helps pay any interest that accrues while the student is still in college. Once they graduate, students are also given a grace period of six months. That means any interest that accrued during their time in college and six months after graduation is fully settled. However, once the grace period is over, they will be required to make the principal and interest in monthly instalments.

Unsubsidised college loans

An unsubsidised college loan begins to accrue interest from the day it is disbursed, although students don’t have an obligation to pay the interest until they finish school. Unlike a subsidised loan, there is no requirement for students to prove financial need and the maximum amount that one can take is higher. The loan limits are also higher compared to subsidized loans.

The biggest disadvantage of a subsidized loan is that the student has an obligation to pay the interest in full and even the grace period still attracts interest. The interest is also payable during forbearance or deferment.

How do I choose which loan to take?

Before you decide which loan to take between a subsidised and unsubsidised loan, it is important to know how much you need so that you don’t end up taking too much and struggle to repay it in the future. In fact, you may want to have a conversation with members of your family because, ultimately, a loan has a bearing on their financial futures.

The interest rate and when the interest starts accruing can make a big difference when deciding which loan to take. Of course, since the government pays the interest in case of a subsidised loan you may want to choose it over an unsubsidised loan if you qualify.

Which loan should I repay first if I have both?

Since the unsubsidised loan accrues interest even when you are still in school, you are better off repaying it first. If you don’t start repaying it earlier, you might end up repaying an amount that is significantly higher as the interest continues to accumulate.

In summary

Before you apply for any loan, it is important to gather as much information as possible so as to make a wise decision. There are so many benefits that come with having a clear understanding of the different types of loans, the most important being the amount of money you can save by taking the right option.


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