What is the difference between subsidized and unsubsidized loans?

Question

and is it a better idea to accept one or the other?

Answer 1

Of course, the subsidized Stafford Loan is better than unsubsidized.  Basically, with the subsidized Stafford Loan the government is paying the interest on the loans while you are in school and with the unsubsized Stafford Loan,  you are paying the interest while in school.  

You cannot request that the school give you a subsidized Stafford Loan as opposed to a unsubidized.  When the school packages you for your awards, they will always offer you the susidized loan first, if you are eligible.  Eligibility is based on your EFC and cost of attendance at the school.

In regards to unsubsidized Stafford Loans, it is best to not to take it if at all possible.  If a student must take it, I always recommend that the student begin paying the interest on the loan immediately so that the interest does not accrue & capitalize just like a credit card.  In this way, once you graduate you will only owe the principal on the loan.  To do this, on the Promissory Note there is a question regarding if you want to pay the interest while you are in school.  

I hope this is helpful.

Answer 2

Subsidized is the better loan because the government pays the loan interest for you while you are in school the other one does not.

Answer 3

Subsidized loans are MUCH better to accept.  With "sub" loans,  interest does not begin being added to the amount you owe until you graduate, and so there is no penalty for waiting until you graduate to begin paying them.  Unsubsidized loans begin adding interest immediately, and should therefore begin being paid back immediately.

Answer 4

I think you mean "layman's terms".  *grin*

Everyone above me did a pretty knock up job on defining each.  Subsidized is always better than Unsubsidized if you are choosing one over another.  Always borrow subsidized funding first because as already stated:  government pays the interest that accrues on the loan while you are in school and in your grace period.  Unsubsidized, on the other hand, accrues interest while you are in school and you have the option of either paying it, or letting it accrue.

Not sure how much more layman you can get than that.  

P.S.  Go discuss this with your financial aid office.

Answer 5

When you borrow money, you pay interest on that money, which is the cost of borrowing it.

If your student loan is "subsidized," that means that the federal government pays the interest while you are in school or why the loan is in deferment. During that time, no interest is added to the amount borrowed (the principal) so the loan amount does not increase.

If the loan is NOT subsidized, there is a specific amount of interest on the borrowed funds each year. This amount is added to the loan and calculated in the amount of the payments when repayment starts.

I hope this explanation helps. If not, send an email and I'll try to explain further!