Direct Subsidized vs. Unsubsidized Loans

Updated on April 17, 2019

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Direct Subsidized vs. Unsubsidized Loans

If you need financial aid to cover the cost of school, you’ll most likely have to use federal student loans. For most undergraduate students, federal student loans are the majority of financial aid packages. Within these packages, you’ll likely have the option of two different forms of federal student loans: Direct Subsidized Loans and Direct Unsubsidized Loans. These loans are also referred to as Stafford Loans. While both give you the funds needed to invest in your future, there are some key differences you’ll want to be aware of.

What’s The Difference?

The main difference between the two is that Direct Subsidized Loans are generally cheaper for students over time.

Direct Subsidized Loans

This is mainly because Direct Subsidized Loans are for students who have demonstrated financial need. With Direct Subsidized Loans, the federal government pays your interest while you’re still in school as long as you maintain status as at least a half time student. The government will also pay the interest on these loans during your six month grace period after you leave school. They’ll even pay your interest while your loans are in deferment if you need to postpone your loan payments. These perks minimize the amount of interest you’ll pay on your loans over time.

Direct Unsubsidized Loans

Direct Unsubsidized Loans, on the other hand, will cost you a little more. These loans are available to all students, regardless of financial need, but lack the many benefits of subsidized loans. The interest on Direct Unsubsidized Loans starts to accumulate immediately after you accept the loan. No matter if you're still in school, a grace period, or deferment, your loan will start to balloon as soon as you receive the money. As interest compounds on itself, this can cost you a great amount of money in the long run. For instance, a $10,000 Direct Unsubsidized Loan taken in freshman year could grow to $13,000 by graduation.

The Takeaway

As you review your financial aid package, be sure to keep these differences in mind. If Direct Subsidized Loans are available to you, you’ll most likely want to use these first. Ultimately, in order to be whyze with your student loans, you’ll want to choose the ones that cost you the least amount of money over time.