There are two types of federal guaranteed student loans: subsidized and unsubsidized. The subsidy refers to the payment of interest while the student is attending school or is in a deferment or grace period. For qualified students, the federal government pays the interest on the loans and therefore “subsidizes” the student loan.
Subsidized student loans are only available to students with financial need based on the FAFSA. These include the Direct (Stafford) and Perkins loan. Students do not have to demonstrate financial need to qualify for direct unsubsidized loans.
Unsubsidized loans do not require students to pay the interest while in schools or during deferment or grace periods. However, the unpaid interest will accumulate and be added to the principal amount of the loan. You can find out how much you could save by paying the interest using the Interest Savings Calculator. Unsubsidized loans include the PLUS loans and a version of the Direct (Stafford) loan.
Students with financial need may be awarded both subsidized and unsubsidized loans. When comparing college costs, families need to be aware that many colleges include subsidized loans as part of the college meeting student’s need. The Common Data Set, used for college rankings such as US News Best Colleges, allows colleges to include subsidized loans under funds used to meet student financial need. They are not included as part of the average net price calculated by the federal government.