If you qualify, you should ideally max out subsidized loans first since the government covers a portion of the interest while you're enrolled in school, during your grace period and if your loans are in deferment.
Subsidized loans offer the benefit of lower overall costs due to government-paid interest during certain periods, while unsubsidized loans provide greater flexibility and higher loan limits but at the cost of accruing interest from the time of disbursement.
The main difference between subsidized loans and unsubsidized loans is that the federal government pays the interest on subsidized loans during periods of authorized deferment, such as the in-school and economic hardship deferments, while the interest remains the responsibility of the borrower on an unsubsidized loan.
It depends on your financial situation. Subsidized loans are generally better because the government pays the interest while you're in school, but they're based on financial need. Unsubsidized loans accrue interest while you're in school, but they're available to all students regardless of need.
Which Student Loans Should You Pay First: Subsidized or Unsubsidized? It's a good idea to start paying back unsubsidized student loans first since you'll likely have a higher balance that accrues interest much faster. Once your grace period is over, even subsidized loans will start accruing interest.
Drawbacks of Unsubsidized Student Loans
You're responsible for paying the interest on that loan from day one. Unsubsidized loans are not the worst loans you can borrow in terms of pure cost and the interest rate that you'll receive. However, the interest accumulates even before you enter repayment.
By making student loan payments while you're in college, you may be able to lower your total loan cost, make your post-school payments more manageable, and build credit.
Explore your federal options first
For most student borrowers, federal Direct loans are the better option. They almost always cost less and are easier to repay. (This may not be the case if you are a parent or graduate student considering federal PLUS loans, though.)
The Federal Direct Subsidized Loan is a student loan that is available to undergraduate students only. The Federal Direct Unsubsidized Loan is a student loan that is available to undergraduate, graduate, and pharmacy students. Loan funds come directly from the U.S. government.
Federal student loans are made by the government, with terms and conditions that are set by law, and include many benefits (such as fixed interest rates and income-driven repayment plans) not typically offered with private loans.
Subsidized Loans do not accrue interest while you are in school at least half-time or during deferment periods. Unsubsidized Loans are loans for both undergraduate and graduate students that are not based on financial need.
Direct Subsidized Loans: You won't be charged interest while you're enrolled in school or during your six-month grace period. Direct Unsubsidized Loans: Interest starts accumulating from the date of your first loan disbursement (when you receive the funds from your school).
If you take out a Direct Subsidized Loan, you will not be charged interest while you're in school, during your grace period, or during other periods of deferment. If you take out a Direct Unsubsidized Loan, interest will accrue on your loan as soon as it is disbursed, even while you are in school.
Where can I get immediate help? In life-threatening situations, call 911 or go to the nearest emergency room. If you are suicidal or in emotional distress, consider using the 988 Suicide & Crisis Lifeline. Call or text 988 or start a chat online to connect with a trained crisis counselor.
Differences Between Direct Subsidized Loans and Direct Unsubsidized Loans. In short, Direct Subsidized Loans have slightly better terms to help out students with financial need.
The interest rate on federal student loans is fixed and usually lower than that on private loans—and much lower than that on a credit card! You don't need a credit check or a cosigner to get most federal student loans.
A subsidized loan is your best option. With these loans, the federal government pays the interest charges for you while you're in college. Here are the types of student loans. (Keep in mind that not all students are eligible for every loan.)
The main draw of subsidized loans, though, is that the interest doesn't start accruing until after you've graduated or you've dropped below half-time enrollment. The U.S. Department of Education actually pays the interest on your loan while you're still in school.
You'll have to repay the money with interest. Subsidized loans don't generally start accruing (accumulating) interest until you leave school (or drop below half-time enrollment), so accept a subsidized loan before an unsubsidized loan.
Both types of loans offer numerous benefits, including flexible repayment options, low interest rates, the option to consolidate loans, as well as forbearance and deferment programs. Both student loans also must be paid back with interest, but the government helps pay some interest on subsidized student loans.
Federal student loans
In general, federal loans have stronger borrower protections and lower interest rates than private student loans (regardless of what your federal loan may be called). Because of these benefits, you should focus your efforts on paying off your private loans first.
Once you graduate, drop below half-time enrollment, or leave school, your federal student loan goes into repayment. However, if you have a Direct Subsidized, Direct Unsubsidized, or Federal Family Education Loan, you have a six-month grace period before you are required to start making regular payments.
If you can't make your payments, contact your loan servicer immediately for help. Your servicer can offer you temporary or long-term options, such as changing repayment plans, deferment, forbearance, or loan consolidation. Get details about what to do if you are having trouble making your payments.