What's the Difference Between Subsidized and Unsubsidized Student Loans?

Unsubsidized Loans: Worth a Look

Unsubsidized loans can cost you more in the long run, but not as much as a private loan would.
Unsubsidized loans can cost you more in the long run, but not as much as a private loan would.
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With college costs high and getting higher, many students need substantial sums of money beyond what their family, work, grants or scholarships provide. If they are unlikely to qualify for need-based loans, or if they need money beyond the limits of subsidized loans, why should they bother to go through the red tape of applying for an unsubsidized federal Stafford Loan? Wouldn't it be easier just to apply for a private loan?

Not really. There are several good reasons for students who need money for their education to borrow as much of it as they can through unsubsidized Stafford Loans. College financial-aid officers usually advise students and their parents to go with fixed-rate unsubsidized Stafford Loans rather than private loans.

The benefits of unsubsidized Stafford loans include:

  • No credit check is required.
  • No collateral is needed.
  • The interest rate, at 6.8 percent now, is usually lower than that on available private loans.
  • The interest rate is fixed, while those of private loans could change at any time.
  • There is no need for a parent or anyone else to co-sign or co-borrow the money.
  • It's usually easier to arrange deferments and flexible repayment plans than it would be with a private loan [source: FinAid].

Those benefits don't come without some work, though. To get an unsubsidized Stafford Loan, just they would to get any subsidized federal student loan or other financial aid, the student and his or her family must fill out the Free Application for Federal Student Aid, commonly known as the FAFSA.

The FAFSA is known for being long and complicated. Jacques Steinberg, an education writer for The New York Times, has described "tackling" the FAFSA as "a notoriously cumbersome process that the government is trying to streamline" [source: New York Times Choice Blog].

Although the FAFSA can be mailed in, the government encourages people to fill it out online. The online application walks you through the process, giving instructions for each question. It also uses "skip-logic" to figure out which questions you need to answer. Applying online also gets you a quicker response.

When applying online, use only the approved, secure sites: www.fafsa.ed.gov or www.FederalStudentAid.ed.gov (where you click on the FAFSA logo). Don't provide information to any other site, especially not to one that asks for a credit card number [source: U.S Department of Education].

If you negotiate the FAFSA and gain approval for a subsidized or unsubsidized student loan, how much money can you expect to get? Read on to find out.