Subsidized loans are mostly available at zero percentage interest to the school students. Subsidized Loans are awarded to the students with a greater financial need for the loan. Subsidized loans are provided at zero percentage of interest for the school students as the government itself takes the responsibility of making the repayment. Subsidized loans have a tight cap on how much you can borrow per year and are dependent upon your specific situation and financial status. Subsidized loans allow you to defer payment until 6 months after you graduate or drop below half time enrollment, or under certain other circumstances, but these types of deferment must be applied for, and are not automatic. Subsidized loans don't accrue interest until after you leave school.

Interest

Interest would normally be charged periodically according to the annual percentage rate (APR). Interest does not accrue, however, when the loan is in a grace period or deferment. Interest is paid by the federal government until the end of the six months grace period after you drop to less than half-time enrollment. Interest does not accrue while you are enrolled at least half time. Interest is charged from the time the loan is disbursed until it is paid off in full. Interest is at 5% during the repayment period, which begins one year after the borrower ceases to be enrolled at least half-time. Interest is subsidized (paid by the federal government) until loan repayment begins, six months after the borrower leaves school. Interest and repayments are not due until six months after graduation or enrollment drops to less than six hours.

Eligibility

Eligibility rules and loan amounts are identical under both programs, but repayment plans differ somewhat. Eligibility is determined by your school's financial aid office from information provided on the Free Application for Federal Student Aid (FAFSA). Eligibility for an alternative loan is based on the borrower's credit rating. Eligibility for unsubsidized loans is not based on your financial need and you are responsible for the interest from the date the funds are disbursed. You may regain eligibility for federal financial aid by making satisfactory payment arrangements on your defaulted loan with the loan service or guarantee agency handling your account. Make certain that loan eligibility is determined and awarded before your last day of eligible enrollment. If you withdraw during the semester, you will forfeit your remaining eligibility and may have to return some monies received.

Subsidized loans carry lower interest rates regardless of the credit score or income of the borrower. Subsidized loans are awarded based on financial need, which is defined using aggregate household income and other considerations. Subsidized loans are those loans for which the government pays the daily interest your loan builds while you are enrolled on a half-time or greater basis and during any approved periods of deferment or forbearance. Subsidized loans are based on need; unsubsidized loans aren't.