Key Differences Between a Subsidized and Unsubsidized Loans

September 2, 2013

I put up a blog post this morning about Canada Student Loans, and promptly received 4 emails asking if I knew anything about the differences between a subsidized and unsubsidized loans. Well, you’re in luck dear friends, as I just helped my sister’s friend navigate these chartered waters a few weeks ago.


Differences between subsidized and unsubsidized loans, student loans, canada student loans,

So if you’re looking into, and are curious  about the two choices of subsidized and unsubsidized loans, here are some tips to remember.

But before we get to that part, I want to say that try and not take loans if possible. I know we’re conditioned to borrow money, but only do so if you have a payment plan already worked out and have played with a loan payment calculator for a long time. Trust me, you don’t want to be 35 and still have to be paying off your student loans.

Key Similarities of Subsidized and Unsubsidized loans:

  • They both give you 10 years to pay back.
  • You can defer principle payments on both types of loans.
  • Both have fixed interest rates attached to them.
  • Each loan has a 6 month grace period

Key differences between between a subsidized and unsubsidized loans


Subsidized loans are loans that you gives you a bit of breathing room since you don’t have to pay it back while you’re in school. It’s technically deferred, and subsidized by the government. So you basically don’t have to worry about paying the principle amount or the interest until you graduate. These loans are dependent on your financial status and specific needs. Subsidized loans can be borrowed for up to 150% of the published length of the program of study. For a 4-year bachelor’s degree program, the maximum period of subsidized loan eligibility is 6 years.

Unsubsidized loans are loans that allow you to make interest payments while you’re still in school. The interest rate is charged from the moment you get the loan. As such you can either make interest-only payments, or allow the interest to be added to the principle. So on top of borrowing a ton of money, you’re adding interest to the pile as you go. Each specific school can and will determine how much money your qualify for.

If you have a choice between subsidized and unsubsidized loans, ALWAYS pick the subsidized ones, then fill the gap with the unsubsidized one. Pay attention to how much you need. While both loan types have a cap,  unsubsidized loans have a higher cap by $4000.

The interest rates for

Borrowing Conditions


  • Student has to be at least a part-time student to be eligible for either of these loans.
  • Student must be a US citizen or permanent resident.
  • Can not be in default for a federal loan.
  • You can only borrow Federal Direct Subsidized and Unsubsidized loans up to six times in an academic year.
  • Your dependancy status, determines how much you can borrow, is set by the FAFSA application and federal guidelines.
  • Students who are independent can borrow $4000 for the first two years and $5000 the last two in subsidized loans in addition to unsubsidized ones.
  • There are aggregate loan limits, (lifetime maximum loan amounts a borrower is eligible for in their academic career) for each student. A borrowers aggregate total is the total off all loans that student has borrowed.
And an added perk:
If you set up to pay your student loans back via electronic payment, you get an interest rate reduction of .25%!

Sources and Citations



You Might Also Like

  • Daisy @ Prairie Eco Thrifter September 3, 2013 at 8:59 am

    I’m lucky in that I’ve never had to take out any loan other than a private one for student loans. That loan has pretty much 0% interest. My friend has a student loan and it’s subsidized. I only know this because she talks about it a lot!

    • Marissa September 3, 2013 at 6:57 pm

      Subsidized loans are great, but have a ton of strings attached.

  • Amanda Bate September 6, 2013 at 1:15 pm

    This is completely on point! I spend my daytime hours, helping students and parents navigate the college admissions and financial aid process and you’ve definitely summarized succinctly a very complicated topic.