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Difference Between Subsidized and Unsubsidized Stafford Loan

Subsidized vs Unsubsidized Stafford Loan

Stafford loans are loans that are offered to eligible students of American colleges and universities to provide assistance in the funding of their education. Formerly known as the Federal Government Student Loan Program, it was renamed in 1988 after Senator Robert Stafford who was active in the advancement of higher education.

Under the Higher Education Act of 1965, the U.S. government guarantees the repayment of the loans should the student fail to settle his obligations. For this, Stafford loans have lower interest rates but also have very strict requirements and limits. Students must complete and submit the Free Application for Federal Student Aid (FAFSA) which allows the Department of Education to evaluate the family’s financial status and determine the student’s needs.

While the student is enrolled, payment is deferred and a grace period of six months is given after he has left school before he is expected to repay the loan together with the interest on the loan.

There are two types of Stafford Loans: the subsidized and the unsubsidized loans. While unsubsidized Stafford loans are available to all students, subsidized Stafford loans are not available to professional and graduate students. Stafford subsidized loans are need-based. Meaning, they are offered to students according to their financial needs. Those who do not have sufficient income to cover the cost of higher education are eligible for subsidized Stafford loans. The interest rate of subsidized Stafford loans does not accrue since the U.S. federal government pays or subsidizes it while the student is in school. It is also much lower than that of unsubsidized Stafford loans.

Unsubsidized Stafford loans are not need-based, and interest accrues from the time it is extended by the school until the student leaves school upon which time he is obliged to repay the loan as well as the accrued interest. It is possible to acquire both loans depending on the student’s needs as evaluated by the financial aid office of the school. It is advised to maximize the amount of what one can acquire of the subsidized Stafford loan before taking out an unsubsidized Stafford loan.

The maximum amount that can be borrowed from a subsidized Stafford loan is lower than that of an unsubsidized Stafford loan:

(Annual) Subsidized Stafford Loan Unsubsidized Stafford Loan

Freshman $ 3,500.00 up to $ 6,000.00
Sophomore $ 4,500.00 up to $ 6,000.00
Junior $ 5,500.00 up to $ 7,000.00
Senior $ 5,500.00 up to $ 7,000.00


1.A subsidized Stafford loan is a loan extended to students according to their needs while an unsubsidized Stafford loan is a loan extended to students regardless of their needs.
2.In a subsidized Stafford loan, the interest payment is subsidized by the U.S. federal government and does not accrue while in an unsubsidized Stafford loan, interest accrues and must be paid by the student after he leaves school.
3.Interest rates on subsidized Stafford loans are lower than that of unsubsidized Stafford loans.
4.The amount of the loan granted is also lower in subsidized Stafford loans compared to that of unsubsidized Stafford loans.

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