Student Loans

There are two types of federal student loans. The key difference between them is who pays the interest while you are in school.

Direct Subsidized Loans: Subsidized loans are awarded based on your financial need, which is determined through FAFSA. If awarded, the government pays your student loan interest on your behalf while you are enrolled in school at least half-time.

• For example, if you borrow $5,000 during your first year, you will still owe that upon graduation but no interest will accumulate while you are still in school.

Direct Unsubsidized Loans: Unlike subsidized loans, unsubsidized loans do not consider financial need and are available to most students. Interest begins accumulating as soon as the loan is disbursed.

• For example, if you borrow $5,000 at 5%, about $250 in interest will accrue in one year; that is about $1,000 in four years.

At graduation, any unpaid interest on unsubsidized loans is added to the principal balance. In this example, the balance increases from $5,000 to $6,000 and future interest is calculated on the higher amount.

As a best practice, always accept subsidized loans first and if possible, pay accruing interest on unsubsidized loans while in school.