Should College Students Take Unsubsidized Federal Student Loans?


One of the first questions on the mind of any college student when they receive their financial aid award letter is, What is the difference between subsidized and unsubsidizedfederal student loans? Sometimes students are only offered unsubsidized loans and they are puzzled about whether they should accept them are not.Both subsidized and unsubsidized federal student loans are offered through the Federal Direct, or the FFEL Stafford Loan programs, which are administered through the federal government. Both types of loans must be repaid. Though the terms and conditions of the loans are set by the federal government (generally making them the best loan options students have), the system is set up so that the actual money comes from and is paid back to private institutions – that means banks.Now, here’s what you really need to know before taking out an unsubsidized student loan.First, with subsidized loans the government covers the interest payments for you while you are in school and/or in deferment. The loan accrues interest just like any other. You’re just not responsible for paying any that accrues before you enter loan repayment on the principle. Students who take out $10,000 (for instance) in subsidized loans, find that, six months after they leave school, they basically owe $10,000 plus whatever interest that gets charged after they start repayment, whenever that might be.When you take out unsubsidized loans, you are responsible for all the interest that the loan(s) accrue, even while you are in school. While enrolled and during the deferment period, you will be given the choice of making voluntary payments on that interest. Making payments like this is a good idea if you are able; it keeps you from being charged interest on your interest. If you do not pay along the way, the interest will be added to the principle of the loan. This could mean that you pay a lot of extra money in interest, which is the biggest drawback of unsubsidized loans.On the other hand if you have not gotten any subsidized loans, because you were told you had no need because your parents make too much money or something, there’s still a good chance unsubsidized federal loans are the best option for you. Subsidized loans are need-based and unsubsidized loans are not. Your level of financial need gets represented by specific numbers calculated from the information you put on your FAFSA application. Without getting in to all the particulars, students who have greater levels of financial need qualify for subsidized loans that those with less need don’t. Even if you have no need at all (according to the governments reckoning) you can still be offered and receive unsubsidized loans.Knowing the differences between these two types of loans can save a lot of confusion, and a surprising amount of money, for you through your college career. If you are ever in a position where you are being offered a combination of subsidized and unsubsidized loans, and you only need to take out half of what’s being offered, go for the subsidized.Finally, remember, don’t take out loans you don’t need, no matter how good the deal might look.