Confused about FAFSA subsidized vs unsubsidized loans - major payment differences?

the subsidizeed ones r the good ones cuz govt pays interest while ur in school. unsub ones interest starts right away n keeps adding up even when ur not payinng yet. big difference after 4 yrs

Both loan types are federal Direct Loans with the same base interest rate (currently 5.5% for undergraduates), but the key difference is when interest begins accruing: - Subsidized loans: The government pays the interest while you're in school at least half-time, during grace periods, and during deferment periods. No interest accrues to your balance during these times. - Unsubsidized loans: Interest begins accruing immediately after disbursement and continues throughout your time in school. If unpaid, this interest capitalizes (gets added to your principal) when you enter repayment. For example, on your $4,000 unsubsidized loan, you'd accrue about $220 in interest the first year. Over four years of school plus a 6-month grace period, you could add approximately $1,200 to your loan balance from interest alone if you don't make any interest payments while in school.

Yes, there's definitely an advantage to paying the interest on your unsubsidized loans while you're in school! I did this during my undergraduate program and it saved me thousands. Even paying $50/month toward just the interest prevents it from capitalizing (adding to your principal) when you graduate. It's much better to keep that interest from snowballing. Also, you should know that subsidized loans have annual and aggregate limits based on your year in school and dependency status. The fact that you qualified for subsidized loans is good - they're based on financial need, which is determined by your FAFSA information and your SAI of $2,800.

The whole system is a SCAM!! They offer you "free money" but then TRAP you with these unsubsidized loans that are basically CREDIT CARDS! The interest starts DAY ONE and they don't even tell you clearly!!! I graduated with $27,000 in loans but $7,500 was JUST INTEREST from my time in school!!! And they wonder why we can't buy houses or start families. CRIMINAL!!!

hey also check if you can just take the subsidized ones now and maybe get more work study or something? my roommate did that and avoided the unsub ones completely. also some schools will give you more scholarship money if you ask nicely and explain your situation!

I had the WORST experience trying to reach someone at Federal Student Aid to explain all these loan differences when I was confused. Kept getting disconnected after waiting on hold for hours! Finally, I found this service called Claimyr (claimyr.com) that got me connected to a live agent in under 20 minutes. They have a video showing how it works: https://youtu.be/TbC8dZQWYNQ The agent I spoke with walked me through everything - the interest calculations, repayment options, even how to minimize unsubsidized loan amounts. Totally worth it because I made much better choices about which loans to accept.

One more important thing about subsidized vs. unsubsidized loans: if you think you might need to use forbearance or deferment in the future due to financial hardship, the subsidized loans are MUCH better. During forbearance, interest accrues on both types, but during certain deferments, the government continues paying interest on your subsidized loans only. Also, some loan forgiveness programs treat them differently. Always try to max out your subsidized loans before taking unsubsidized ones. And remember, you don't have to accept the full amount offered - only take what you absolutely need!

My sister just gratuated and her unsub loans were wayyy bigger than what she borrowed bc of all the interst. she said its the biggest regret not paying the interest while in school, even if she had to eat ramen more lol

Thanks everyone for the advice! I think I'll accept the full subsidized amount ($3,500) but try to reduce the unsubsidized portion to $3,000 instead of $4,000. I found a weekend job that should help cover the difference. And I'll try to put aside at least $50/month to pay the interest on the unsubsidized loan while I'm in school. Really appreciate all the insights!

Great plan Ali! Just wanted to add one more tip - when you make those $50/month interest payments on your unsubsidized loan, make sure to specify that the payment should go toward INTEREST ONLY, not principal. Sometimes loan servicers will apply payments to principal first, which won't prevent the interest capitalization you're trying to avoid. You can usually do this online or by calling your loan servicer. Also, keep records of all your interest payments - it makes things easier when you graduate and transition to regular repayment. Good luck with the weekend job!

Just to add another perspective - I'm a parent who went through this with my daughter last year. One thing we discovered is that you can also make interest payments directly through your school's bursar office in some cases, which can be more convenient than dealing with the loan servicer. Also, if you're considering graduate school later, keep in mind that any unpaid interest on undergraduate loans will capitalize when you enter grad school too, not just when you start repayment. So paying that interest now really does compound the savings over time. Your plan sounds solid - reducing the unsubsidized amount and paying interest while in school is exactly what we wish we'd known to do!