What is the difference between subsidized and unsubsidized loans?

Subsidized and unsubsidized loans are two types of federal student loans available to help students finance their education. The primary difference between the two lies in how interest accumulates while the borrower is in school and during certain periods of deferment. Subsidized loans are need-based loans available to undergraduate students who demonstrate financial need. The U.S. Department of Education covers the interest on these loans while the borrower is enrolled in school at least half time, during a six-month grace period after graduation, and during any periods of deferment. This means that the borrower does not have to worry about interest accruing during these times, making subsidized loans a more economical option for eligible students. On the other hand, unsubsidized loans are not need-based and are available to both undergraduate and graduate students regardless of financial need. With unsubsidized loans, interest begins to accrue as soon as the loan is disbursed. If the borrower chooses not to pay the interest while they are in school or during deferment or forbearance periods, the accrued interest will be added to the principal amount of the loan, which increases the overall cost of borrowing. Understanding the differences between these two types of loans is crucial for students attempting to manage the costs of higher education effectively. It is advisable to review the current information on student loan options and repayment plans available on the official website of the U.S. Department of Education, as this information can provide further clarity and assistance.