What distinguishes a subsidized loan from an unsubsidized loan?

A subsidized loan is designed to provide financial relief to borrowers, particularly students. One of the primary distinguishing features of a subsidized loan is that the government pays the interest on the loan while the borrower is enrolled in school at least half-time, during the grace period, and during periods of deferment. This means that as long as the student remains eligible, no interest will accrue on the loan during these times, making it a more financially favorable option compared to its unsubsidized counterpart.

In contrast, an unsubsidized loan begins to accumulate interest as soon as the funds are disbursed, meaning borrowers are responsible for paying that interest even while they are still in school. This distinction is crucial for students to understand as it can significantly impact the total amount they will owe upon graduation.

Recognizing this difference helps borrowers make informed decisions about their financing options for education, ultimately shaping their repayment strategies and affecting their financial well-being after school.