What Is the Difference Between Subsidized and Unsubsidized Stafford Loans?

Subsidized Stafford Loans

The Department of Education does not require you to pay interest on a subsidized Stafford loan while you enrolled in school at least half-time. Half-time enrollment is at least six credit hours per semester. During this time, your interest does not accumulate. Interest begins to accumulate on your loans after graduation, or if your enrollment drops to below half-time. In either of these cases, you have a six-month grace period before you have to begin making loan payments.

Interest begins to accumulate on unsubsidized Stafford student loans from the day the Department of Education pays out the loan to your school. The interest on a subsidized Stafford loan continues to accumulate as long as your enrollment status is at least half-time. If your enrollment states drops below half-time, you will have a six-month grace period before you have to begin making loan payments. Your loan payments will also begin six months after you graduate.

Once you graduate or your enrollment drops to below half-time, the Department of Education capitalizes the accumulated or accrued interest into the principal balance of your Stafford loans. The capitalized interest increases the total principal balance of your unsubsidized loans and increases your payments. You have the option of making interest only payments on your loans while you are attending school to avoid increasing your payments due to interest capitalization.

Loan limits on both unsubsidized and subsidized Stafford loans vary for each year of college. First-year student loan limits are less than fourth-year students. Loan limits are higher if you are an independent student than if they are if someone can claim you as a dependent. The maximum limit in 2011 for subsidized and unsubsidized Stafford loans at the time of your graduation is $57,500 for independent students, $31,000 for dependent students and $138,500 for graduate students.