What Does it Mean When Your Student Loan for Online Degree is Subsidized?

The best way to pay for your college education is through scholarships and grants - free money that is given to you with no strings; money you never have to pay back. However, most people might be able to get some scholarships or loans, but rarely is that free money sufficient to cover your entire education. Thus, most people need a student loan for online degree payment. Student loans, as you may have read in detail elsewhere on our site, can be private or government sponsored. The government sponsored kind, most often the Federal Stafford Loan, is the best type of loan to get. With a Stafford Loan you are assured a good interest rate and loan terms that can make it easier to pay off your student loans. These loans come in two types, either subsidized or unsubsidized. If you are considering a student loan for online degree program, you need to know the difference between the two.

Unsubsidized vs. Subsidized

If you think about the meaning of the word subsidized this decision might make a bit more sense. Generally, when something is subsidized it means that the government or some other organization pays part of your costs. With a student loan, this means that the government agrees to pay your interest on your loans throughout your time in college and any time when you have a legitimate, approved deferment of your student loans. In short, student loans - like any other loan - have an interest rate, and you accrue interest on them every month. With a subsidized loan there are times when the government will pay that interest for you. This means that the cost of an online degree is less because you are paying much less interest.

Private and Unsubsidized Loans

Let's look at an example to see when this subsidy will benefit you; note that I am just making up numbers to make this easy to understand, but the logic and facts are sound. Say you are just starting college, and you get a student loan for $10,000 to pay for your first year of school. Let's say it is a personal student loan. The interest rate will be about 7-10% and interest will start to accrue from the day they cut you that check - before you have even walked into your first course. Likely, you will have the option not to make any payments while you are in school; you defer your payments until you graduate. So, by the time you graduate that $10,000 will have been taking on interest over your four years of school, and now it could be as much as $14,000. Really.

Now, if you had a Federal Stafford Loan, you have two possibilities. If you had an unsubsidized loan then your interest rate will likely be somewhat lower than a private loan, perhaps 3-5%. However, this interest will still accrue while you are in school and by the time you graduate you will owe perhaps $12,000 on that original $10,000.

The Joy of the Subsidized Loan

If you have a subsidized student loan for online degree then everything is different. Here, you still have an interest rate, likely around 3-5%. But the difference is, while you are in school or in any other period of official deferment the government pays the bank your interest for you. So, when you graduate that original $10,000 is still just $10,000; it has not taken on any additional interest. Whenever possible, you want to opt for subsidized loans. Now, understand that likely you will need a combination of both unsubsidized and subsidized loans to cover your online education, and that is fine. Take what you need. But just know that a subsidized student loan for online degree is the best.