Government Loans

Subsidized or Not

Federal student loans given to students may be subsidized by the U.S. Government, or may be unsubsidized depending on the student's financial need.

Both subsidized and unsubsidized loans are guaranteed by the U.S. Department of Education either directly or through guaranty agencies. Nearly all students are eligible to receive them (regardless of credit score or other financial issues). Both types offer a grace period of 6 months, which means that no payments are due until 6 months after graduation, or 6 months after the borrower becomes a less-than-full-time student without graduating. Both types have a fairly modest annual limit regardless of the student's actual Cost of Education.

Subsidized federal student loans are offered to students with a demonstrated financial need: generally requiring a low family income. For these loans, the federal government makes interest payments while the student is in college. For example, those who borrow $10,000 during college will owe $10,000 upon graduation.

Unsubsidized federal student loans are offered to most students. They are also guaranteed by the U.S. Government, but the government does not pay interest for the student, rather the interest accrues during college. Those who borrow $10,000 during college will owe $10,000 PLUS INTEREST upon graduation. The accrued interest will be "capitalized" into the loan amount, and the borrower will begin making payments on that accumulated total. For example, those who have borrowed $10,000 and had $2,000 accrue in interest will owe $12,000. Interest will begin accruing on the $12,000. Students can also choose to pay the interest while in college.

All PLUS loans (federal loans made to parents) are unsubsidized.