Subsidized Student Loan: What Is It Exactly?

If you need some financial help to pay for your college education you can apply for different types of student loans to help you. Your loan will accrue interest until you pay it back, meaning that the amount you eventually repay will be greater than the amount you initially borrow. The rate of interest will depend on the type of loan you are awarded. The most common types of student loans are Federal Perkins Loans and Federal Stafford Loans. The Perkins Loan has the lowest rate of interest, but is only awarded to students who can demonstrate that against other students, they have a financial need for this more desirable type of loan. Stafford loans are easier to qualify for, and can often be larger (depending on criteria such as whether you are a graduate or undergraduate student, and whether or not you are still financially dependent on your parents), but they have a higher APR rate of interest.

Interest is added to your loan amount periodically throughout the length of the borrowing period. However, some students will qualify for subsidized loans, where under certain conditions the interest is paid for them.

Both Perkins and Stafford loans can be subsidized if you can demonstrate that you have a financial need comparative to other students applying for the same loans. If you qualify, then under certain conditions you will not accrue any interest on your loan.

Because the way student loans work is that it is assumed that once you have finished school you will get a job that will allow you to be able to afford to pay back your loan installments, the interest is only subsidized while you are in school, during the grace period between school and the start of your repayments (which is to give you time to find a job) which is six months for Stafford loans and nine months for Perkins loans, and during certain periods of economic hardship where a deferral has been approved.

Deferrals for financial hardship can be approved if you can demonstrate that you have been unable to find a job (though you will have to prove that you have been trying) straight after college, or later on after you have started repayments if you lose your job. These deferments can be approved for up to three years. If your loan is subsidized, you will not accrue interest during these deferment periods. If you do not have a subsidized loan, you will either have to pay the interest during your deferment or it will be capitalized, which means it will be added on to the back of the loan.

If you don't qualify for a deferment, you can often get a forbearance, which is a temporary dispensation to either stop paying back your loan of make lower repayments. Unlike with deferment, with forbearance you have to pay interest whether your loan is subsidized or not.

Speak to your Financial Aid Office for more information about subsidized student loans.