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What is a Subsidized Loan?

A subsidized student loan is where the government will pay the interest whilst the student remains enrolled in a qualified college or university. What this means is that any interest that would have accumulated on the subsidized loan balance is essentially erased by the government.

Subsidized loans are often confused with student loans that are in postponement. These loans will still have the interest added to them throughout the student’s education, but payments on the loan are not due until after graduation or withdrawal.

subsidized loans

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Generally subsidized loans are reserved for students that demonstrate a financial need on an ongoing basis throughout there tertiary education.

Stafford and Perkins loans are the most common subsidized loans.

Anybody can subsidize a loan. It will depend on the type of loan but a government organization, a charity or other group can subsidize a loan. In the case for a subsidized Stafford Loans, the US government pays the interest whilst the student is still in school.

Qualifying for a Subsidized Loan

You will need to know if you qualify for a subsidized loan. There are some housing loans for instance that require you to live in a certain area and earn less than a specified amount. In the case of a student loan that is subsidized, you will need to be able to demonstrate that you have a financial need which is based on your income and resources compared to the cost of attending a school.

Not only will you need to demonstrate a financial need you will also need to fulfil some other criteria for a subsidized loan. The loans are only subsidized while you are:

  • Enrolled at least half time
  • During certain deferment periods
  • During a grace period

When you do not meet these criteria anymore then the interest will begin to accrue on your loans.

An aspect that is important to note is that you may borrow using unsubsidized and subsidized loans in the same year.