Direct loans: Subsidized vs. unsubsidized and interest rates for 2016-2017
As part of their financial aid award, a student may be offered a combination of Subsidized and Unsubsidized student loans. These are Federal loans that are very similar in many ways, but there are differences. Do you know the difference and which you should accept?
Students should first accept the loans with the most favorable terms and conditions; typically that would be any Federal Subsidized loan. Subsidized loans are borrowed money that must be repaid with interest; however, the U.S. Department of Education will pay the interest on the student’s behalf while they are in school and during authorized periods of deferment. Subsidized loan interest is fixed annually.
Unsubsidized loans are also federal borrowed money. The student is responsible for paying the interest from the date of disbursement until the loan is paid in full. If the student chooses not to pay the interest on the unsubsidized loan while they are in school, the interest will accrue from the time of disbursement. Interest can be paid periodically or can accrue and will be capitalized (added to the principal amount of the loan). Unsubsidized interest is fixed annually.
Interest rates for the 2016-2017 school year were set this month. They have been set at 3.76%.