A subsidized loan is a type of loan where the government pays the interest on the loan while the borrower is in school, during periods of deferment, and during the grace period after leaving school. Subsidized loans are usually federal student loans given to undergraduate students who demonstrate financial need. The amount of the loan is determined by the cost of attendance minus expected family contribution and other financial aid, such as grants or scholarships. Subsidized loans do not accrue interest while the borrower is in school at least half-time or during deferment periods.

In contrast, an unsubsidized loan is a loan for both undergraduate and graduate students that is not based on financial need. Interest is charged during in-school, deferment, and grace periods. Unlike a subsidized loan, the borrower is responsible for the interest from the time the unsubsidized loan is disbursed until it is paid in full.

Both types of loans offer numerous benefits, including flexible repayment options, low interest rates, the option to consolidate loans, and forbearance and deferment programs. However, subsidized loans are only available to undergraduates who demonstrate financial need, while unsubsidized loans are available to both undergraduates and graduate students.

To qualify for a subsidized loan, the borrower must demonstrate financial need based on the cost of attendance and expected family contribution. The current interest rate for subsidized loans disbursed on or after July 1, 2022, and before July 2023, is 4.99% for undergraduates. For unsubsidized loans, the interest rate is also fixed and varies depending on the borrowers status as an undergraduate, graduate, or professional student.

In summary, a subsidized loan is a type of loan where the government pays the interest on the loan while the borrower is in school, during periods of deferment, and during the grace period after leaving school. It is available to undergraduate students who demonstrate financial need. In contrast, an unsubsidized loan is a loan for both undergraduate and graduate students that is not based on financial need, and the borrower is responsible for the interest from the time the loan is disbursed.